Organigram invests in Sanity Group, Germany's leading cannabis company

Organigram Holdings is investing 14 million euros ($14.9 million) in Sanity Group, a Berlin-based cannabis operator, as the Canadian producer seeks to expand into Germany.

«A significant presence in Germany and Europe is essential to achieving our ambition of becoming a global leader in the cannabis industry,» said Paolo De Luca, Organigram’s chief strategy officer, in a statement.

Beena Goldenberg, CEO of Organigram, highlighted the company's expanding presence in Europe.

«This could allow us to launch our own brands and intellectual property through Sanity's extensive distribution network,» said Mr. Goldberg.

«This partnership also allows us to generate revenue in Europe through a significantly expanded commercial agreement.»

As part of this agreement, Organigram and Sanity Group have expanded their supply agreement to increase production and market the Canadian producer’s brands and intellectual property in Germany.

Sanity distributes products to more than 2,000 pharmacies and works with approximately 5,000 doctors in Germany, where it launched a Limited adult-use cannabis market on April 1.

Organigram stated in the press release that it holds a 10% share of the German medical cannabis market.

The agreement with Sanity Group comes after Organigram entered the U.S. cannabis market with its acquisition, in March, of a minority stake in Open Book Extracts, a North Carolina-based company.

Sanity, one of the pioneers in the German market

Sanity has quickly established itself as a leader in the German cannabis market, where it maintains a strong distribution network with more than 2,000 pharmacies working with approximately 5,000 doctors in Germany. Sanity currently holds approximately 10 % of the German medical cannabis market, where its medical brand, avaay, ranks second and has seen impressive revenue growth since the recent legal reforms regarding the partial legalization of recreational cannabis for adults in Germany.

In addition, Sanity is currently participating in a program Swiss recreational cannabis pilot program in the canton of Basel, with an operational store and a plan to expand its retail presence in Switzerland. Over the coming months, Sanity is expected to invest in proprietary distribution channels that it believes will give it a competitive advantage, driven by new medical consumers entering the market.

The company’s investment also expands the previously announced supply agreement between Organigram and Sanity Group. Until Organigram obtains EU-GMP certification at its Moncton production facility, Sanity Group has committed to purchasing significantly higher annual volumes of dried flowers under the new agreement. Once Organigram obtains EU-GMP certification in Moncton, Sanity Group will transition its annual purchase commitment from Organigram to a percentage of its overall flower product portfolio for the European market. Organigram expects to complete its final EU-GMP audit before the end of the calendar year. In addition, the new commercial agreement provides, subject to its terms and conditions, avenues through which Organigram can launch its leading brands, products, and intellectual property in the German market.

«A strong presence in Germany and Europe is essential to achieving our goal of becoming a global leader in the cannabis industry. We believe that, after Canada, Germany will become one of the most promising markets with a national regulatory framework,» said Paolo De Luca, Chief Strategy Officer at Organigram.

«With its evolving medical cannabis program and recent limited legalization of recreational use, Germany could eventually adopt a comprehensive framework for adult-use cannabis. This growth opportunity is amplified by positive regulatory developments in several neighboring European jurisdictions where Sanity Group is expanding its presence. »

«Our investment in Sanity Group gives us a strong European presence. Organigram benefits from Sanity’s expertise and knowledge of the German market and, in the future, other European markets. This has the potential to provide a pathway for us to launch our own brands and intellectual property through Sanity’s extensive distribution network. This partnership also strengthens our revenue generation in Europe through a significantly expanded commercial agreement,» said Beena Goldenberg, CEO of Organigram.

«We are delighted to complete this strategic investment with Organigram, which has consistently proven itself to be a leader in Canada’s highly competitive and regulated cannabis market,» said Finn Hansel, co-founder and CEO of Sanity Group. «Thanks to its commitment to responsible R&D, innovation, and product development, including thanks to its relationship with British American Tobacco »(BAT), we believe we have chosen a partner that will help us become a leader in the rapidly expanding European markets,” he concluded.

The German and European Cannabis Markets

The German cannabis industry is poised for significant growth following the legal reforms regarding recreational cannabis that took effect on April 1, 2024. According to BDSA estimates, the German market is expected to generate approximately $1.5 billion in total sales in 2024 and reach ~$3.7 billion by 2027. This remarkable growth is driven by a 30 to 50 % increase in medical cannabis prescriptions since April 1, 2024—likely a result of changes to the regulatory framework that may have accelerated consumers’ transition from the illicit market to the legal market. Progress in Germany’s cannabis industry is also expected to create a ripple effect that could shape economic, regulatory, public health, and cultural landscapes across Europe. The success of the cannabis industry in Germany could serve as a catalyst for a more unified and progressive approach to cannabis legalization and regulation across the continent.

Strategic Rationale and Potential Opportunities

• Establishes a meaningful European presence for Organigram through a leading regional cannabis company with a presence in multiple markets.
• Organigram benefits from Sanity's expertise and knowledge of the German market and, in the future, of other European markets.
• Provides Organigram with an opportunity to launch its own brands and intellectual property in Europe through Sanity's extensive distribution network.
• Strengthens Organigram’s revenue generation in Europe through an expanded commercial agreement that includes improved terms and commitments.
• Other investment opportunities may enable Organigram to increase its unsecured convertible note and its ownership stake in Sanity Group.

Investment Details

• The initial investment of 14 million EUR consists of 11.5 million EUR structured as an unsecured convertible note (the «Note») issued by Sanity Group as the lender and EUR 2.5 million in previously issued equity securities purchased from existing shareholders.
• The Note generates 10 % in annual interest paid in kind for a minimum of three years and is convertible at a discount to the price set by Sanity Group’s next qualifying financing in the highest-ranking class of shares (currently Series B).
• Organigram has the option, subject to certain terms and conditions, to invest an additional 3 million EUR under terms substantially identical to those of the Note, which would bring its total investment to 17 million EUR.
• Sanity plans to use the proceeds to invest in various initiatives that are expected to give it access to more than 100,000 patients, as well as to support the expansion of the recreational cannabis pilot program in the relevant regions.
• Previous investors in Sanity Group include BAT, Casa Verde Capital (Snoop Dog), Will.i.am (Black Eyed Peas), Navy Capital, Scooter Braun, and Alyssa Milano, among others.