British American Tobacco buying stake in cannabis producer Organigram

A subsidiary of British cigarette maker British American Tobacco (BAT) and Atlantic Canada-based cannabis producer Organigram have signed a 220 million Canadian dollar ($175 million) strategic collaboration with a focus on research and product development, the companies announced Thursday.

It is one of the largest deals to date between a tobacco company and a cannabis producer and may signal revived interest in deal-making between the two sectors – which cooled in recent years following a flurry of collaborations around 2019.

The BAT subsidiary is taking a 19.9% stake in Organigram by buying 58.3 million common shares at a price of CA$3.792, based on a five-day average price on the Toronto Stock Exchange.

British American Tobacco and Organigram have agreed to establish a Center of Excellence in Moncton, New Brunswick to collaborate on product development with an initial focus on CBD.

The companies will form a steering committee to govern and supervise the project, consisting of an equal number of senior employees from both companies.

Both BAT and Organigram will contribute scientists, researchers and product developers.

Per the agreement, the companies have the right to independently commercialize the products, technologies and intellectual property created through the project globally.

“We have been extremely selective about aligning with a strategic partner and, in BAT, we’ve found a leading consumer goods business with sophisticated management, innovative product platforms, an impressive dedication to research and development, deep consumer insights, regulatory expertise and a commitment to responsible stewardship and consumer safety among many other enviable attributes,” Greg Engel, CEO of Organigram, said in a press release.

British American Tobacco joins rival tobacco companies in the cannabis space.

Philip Morris International was one of the first to make the jump into medical cannabis.

In 2016, the cigarette giant invested $20 million into Tel Aviv-based Syqe Medical.

From there the deals rose in scale.

In 2019, Auxly Cannabis finalized an investment from Imperial Brands worth CA$123 million – at the time one of the largest investments from a tobacco company.

Ontario-based Cronos Group closed a CA$2.4 billion investment from Altria the same year.