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British American Tobacco Takes 20% Stake in Organigram

By Rich Duprey - Mar 11, 2021 at 11:42AM

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The cannabis grower and the tobacco giant will jointly develop new CBD-based consumer products.

British American Tobacco (BTI -2.20%) took its time getting into the marijuana business, but it's now ready to make its mark: The company is purchasing a near-20% stake in Canadian pot producer Organigram (OGI -9.02%).

The tobacco giant and the marijuana company will also establish a "Center for Excellence" at Organigram's Monckton grow facility in New Brunswick to develop new cannabis-based products.

Although the size of the cigarette maker's investment is not on the order of Altria's $1.8 billion interest in Cronos Group, it does build on British American's recent foray into cannabidiol (CBD). The company is testing a CBD vaping product in the U.K.

Vaping device and marijuana

Image source: Getty Images.

Organigram said a subsidiary of the global tobacco giant would receive 58.3 million shares of its stock for about $3 per share or around $176 million total, equating to a 19.9% stake in the business.

Just as British American carefully mulled its strategy for entering the marijuana business even as some of its peers were rushing in, Organigram said it, too, had been "extremely selective about aligning with a strategic partner." 

The capital injection will allow the cannabis company to invest even more in research and development, as well as providing it with the means to eventually enter the U.S. and international markets.

British American has said CBD will be its primary initial focus in the cannabis space, and says Organigram "has a proven track record of consumer-led innovation and developing high quality adult-use recreational and medical cannabis products, which are legally available in Canada."

Canada legalized marijuana in 2018.

Scientists, researchers, and product developers from both companies will contribute to the new development center, which will be overseen by an equal number of senior members from both companies who will sit on a steering committee.

British American Tobacco also will be able to appoint two directors to Organigram's board.

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Stocks Mentioned

OrganiGram Holdings Stock Quote
OrganiGram Holdings
$1.21 (-9.02%) $0.12
Altria Group, Inc. Stock Quote
Altria Group, Inc.
$53.20 (-1.92%) $-1.04
British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
$42.67 (-2.20%) $0.96
Cronos Group Stock Quote
Cronos Group
$3.32 (-6.21%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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