British American Tobacco (BAT) recently announced a substantial investment of nearly $125 million in Canadian cannabis producer Organigram, doubling its stake which previously stood at 19.9%.
The investment, subject to regulatory and shareholder approval, is expected to drive Organigram’s global expansion and take advantage of the evolving legal recreational cannabis landscape.
An expanded partnership and strategic investment pool
BAT’s journey with Organigram began in 2021 when it invested $220 million in the Canadian cannabis company. Subsequently, BAT added $6.35 million in 2022. Today, with the latest injection of $125 million, BAT has 45% of the company’s shares and 30% of the voting rights.
Organigram plans to allocate the majority of the investment, approximately $83.1 million, to the creation of a strategic investment fund called Jupiter. This pool is designed to target emerging opportunities in cannabis globally, in line with Organigram’s geographic expansion goal. Beena Goldenberg, CEO of Organigram, highlighted the importance of this investment in a press release, stating that it “strengthens an already strong balance sheet” and accelerates the company’s growth plans.
Market conditions and strategic priority
BAT’s aggressive approach to investing aligns with favorable market conditions. Global cannabis legalization trends, some undervalued cannabis companies, and the search for strategic investors create a favorable environment for BAT’s investment strategy to continue.
Organigram’s strategic investment pool, Jupiter, is positioned to take advantage of these conditions, providing the company with the capital necessary to build a global foundation amid substantial growth in the legal recreational cannabis market.
BAT’s plan and Organigram’s growth
BAT’s investment consists of subscribing for 38.7 million shares at a price of 3.2203 Canadian dollars per share, divided into three tranches. Upon closing of the first tranche, BAT will be able to appoint up to 30% of the members of Organigram’s board of directors. This level of influence highlights the depth of the strategic partnership between the two companies.
Despite concerns raised in Organigram’s quarterly report, which cited challenges such as declining cannabis flower prices and regulatory restrictions on certain products, the company’s recreational net income for the nine months ending 31 May 2023 increased by $8 million compared to the same period of the previous year.
International sales also nearly doubled from $9.5 million in 2022 to $18.4 million in fiscal 2023.
Since the initial investment in 2021, BAT and Organigram have collaborated on product development, including beverages, new vape pen formulations, flavor innovations and packaging solutions, all currently in final stages of development .
In September 2022, BAT also obtained a non-controlling minority stake in German cannabis company Sanity Group and owns 19.9% of Charlotte’s Web.