What happened

Shareholders of tobacco giant British American Tobacco (NYSE:BTI) had to be happy with the month of March, as shares gained 11.6% in the period, according to data provided by S&P Global Market Intelligence. That exceeds the approximately 9% returns for the entire past 12 months. Some of what investors like is the progress BAT is showing in diversifying from its traditional tobacco and nicotine products. 

So what

In mid-February, when the company reported its fiscal 2020 results, BAT updated investors on several aspects of its "new categories" segment. Its Vuse vapor revenue grew 85%, for example. But developments with its moves into cannabis-related products is what investors seem to be cheering the most.

man vaping CBD product on British street

Image source: Getty Images.

In January 2021, BAT launched a pilot program in Manchester, U.K. for its first cannabidiol (CBD) vaping product, Vuse CBD Zone. And on March 11, the company announced it has entered into a strategic partnership with Canadian cannabis company Organigram Holdings (NASDAQ:OGI)

Now what

The Manchester CBD vaping product aims to offer adults BAT's Vuse brand that "caters to a variety of moods and moments in their busy lifestyles," according to the company. With its traditional vape products, BAT says it is growing market share already. In the U.S., BAT said it had over 60% market share by volume in the last quarter of 2020. It said Vuse is now the market leader in 15 U.S. states.  

But the deal with Organigram is what drove investor interest in March. The agreement calls for BAT to take an approximately 20% stake in Organigram. The $175 million investment includes plans for research and development collaboration with Organigram. The efforts will "focus on developing the next generation of cannabis products with an initial focus on CBD," the companies said in a joint statement.

The company stressed that "This agreement augments ongoing BAT activities to expand its portfolio beyond nicotine." It added, "This choice provides reduced risk alternatives to combustible cigarettes, as well as going beyond tobacco and nicotine into new and exciting areas of product innovation."

The expansion beyond cigarettes, and even nicotine, is what investors seem to be looking for in the future with BAT. 

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