Looking beyond tobacco, BAT tries Canadian pot luck

British American Tobacco (LON:BATS) said on Thursday it will buy a nearly 20% stake in Canada-based cannabis producer Organigram for about 126 million pounds ($175.81 million) as it diversifies beyond its main tobacco business.

Organigram grows cannabis and makes cannabis-derived products in Canada where marijuana was legalised in 2018.

Big tobacco and liquor companies in North America have already made large investments in the nascent industry, with cannabis seen as a less-harmful alternative to cigarettes.

And with top Democratic lawmakers in the United States also promising to decriminalise marijuana use, analysts and experts predict record investment in the industry this year.

The deal with Organigram will give BAT access to R&D technologies, product innovation and cannabis expertise, it said in a statement.

A ‘Centre of Excellence’ will be established at Organigram’s facility in New Brunswick, Canada, to focus on developing next-generation cannabis products with an initial focus on natural remedy cannabidiol.

Both BAT and Organigram will contribute scientists, researchers, and product developers to the centre, BAT said, while the unit which acquires the stake in Organigram will become its largest shareholder and can appoint two directors to the Canadian company’s board.

Organigram’s U.S.-listed shares surged around 50% to $4.32 in premarket trading on the Nasdaq. BAT’s London-listed shares were flat.

“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,” BAT said.

Both parties will able to commercialise under their own brands any products developed from the collaboration.

“As global cannabis deregulation gains pace, led by the US, we have been approached by an increasing number of Big Tobacco, Big Pharma and leading FMCG companies, looking to invest in the Cannabis sector,” said Tristan Gervais, Chrystal Capital’s Head of Cannabis advisory at Europe’s Cannabis Merchant Bank.

Marlboro maker Altria (NYSE:MO) has invested in pot producer Cronos Group Inc, while Corona beer-maker Constellation Brands Inc (NYSE:STZ) has a stake in Canopy Growth, the largest cannabis company globally by market value.

($1 = 0.7167 pounds)