British American Tobacco doubles its stake in Organigram

British American Tobacco (BAT) recently announced a substantial investment of nearly $125 million in the Canadian cannabis producer Organigram and is doubling its stake in the company, which had previously stood at 19.9%.

The investment, subject to approval by regulatory authorities and shareholders, is expected to drive Organigram’s global expansion and capitalize on the evolving landscape of the legal recreational cannabis industry.

An Expanded Partnership and a Strategic Investment Pool

The BAT's partnership with Organigram began in 2021 when it invested $220 million in the Canadian cannabis company. BAT subsequently added $6.35 million in 2022. Today, with the latest investment of $125 million, BAT holds 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 fund is designed to target emerging opportunities in the global cannabis industry, in line with Organigram’s goal of geographic expansion. Beena Goldenberg, CEO of Organigram, highlighted the importance of this investment in a press release, stating that it «strengthens an already solid balance sheet» and accelerates the company’s growth plans.

Market Conditions and Strategic Priorities

BAT’s aggressive investment approach is in line with favorable market conditions. Global trends toward cannabis legalization, certain undervalued cannabis companies, and the search for strategic investors are creating an environment conducive to the pursuit of BAT’s investment strategy.

Organigram’s strategic investment fund, Jupiter, is positioned to capitalize on these conditions, providing the company with the capital needed to establish a global footprint amid the substantial growth of the legal recreational cannabis market.

BAT's Plan and Organigram's Growth

BAT’s investment consists of subscribing to 38.7 million shares at a price of 3.2203 Canadian dollars per share, divided into three tranches. Upon completion of the first tranche, BAT will be able to appoint up to 30% members to Organigram’s board of directors. This level of influence underscores the depth of the strategic partnership between the two companies.

Despite the concerns raised in Organigram’s quarterly report, which cited challenges such as falling cannabis flower prices and regulatory restrictions on certain products, the company’s recreational net revenue for the nine months ended May 31, 2023, increased by $8 million compared to the same period the previous year.

International sales also nearly doubled, rising from $9.5 million in 2022 to $18.4 million for fiscal year 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 of which are currently in the final stages of development.

In September 2022, BAT also acquired a minority stake without a controlling interest in the German cannabis company Sanity Group and owns 19.9% of Charlotte’s Web.