British American Tobacco BTI, recognized as one of the top three tobacco companies globally by both market capitalization and net sales, has further entrenched itself in the cannabis industry, finalizing a strategic investment of C$124.6 million (approximately $86.8 million) in Organigram Holdings Inc. OGI, a leading Canadian licensed cannabis producer. The completion of this three-tranche investment cements BAT’s role as a major stakeholder in Organigram and highlights the increasing convergence of the tobacco and cannabis sectors.

A Strategic Move Amid Market Challenges

The investment, executed through BAT’s wholly owned subsidiary BT DE Investments Inc., marks another significant foray by a major tobacco company into the cannabis industry. As traditional tobacco markets shrink due to declining smoking rates and regulatory pressures, companies like BAT, Philip Morris International PM and Altria Group MO are seeking diversification in alternative markets, with cannabis proving an attractive prospect.

According to Paolo De Luca, chief strategy officer at Organigram, “Opportunities in the space have only improved with cannabis valuations at historically weaker levels and many cannabis and hemp companies unable to access cost-efficient growth capital despite fundamentally strong businesses.”

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The injection of funds into Organigram is expected to accelerate the company’s international expansion and product innovation efforts. The financing will primarily be allocated to a strategic investment pool known as “Jupiter,” designed to identify and support growth opportunities in the global cannabis market. Organigram has already deployed portions of this pool, including C$21 million invested in Germany’s Sanity Group and C$2.7 million in U.S.-based Open Book Extracts.

The Growing Footprint of Big Tobacco in Cannabis

BAT’s move follows a growing pattern of investments by major tobacco firms in the cannabis sector:

• Altria Group, the parent company of Marlboro, invested $1.8 billion in Canadian cannabis firm Cronos Group CRON in 2018, acquiring a 45% stake.
• Philip Morris International agreed to purchase Israeli medical cannabis inhaler company Syqe Medical in 2023 for up to $650 million.
• Imperial Brands invested £75 million ($96.4 million) in Auxly Cannabis Group CBWTF and participated in funding Oxford Cannabinoid Technologies, a company focused on cannabis-based pharmaceuticals.
• BAT led a $37.6M Series B funding round in Germany’s Sanity Group, securing a minority stake in 2022.

These moves underscore the increasing alignment between the tobacco and cannabis industries, particularly as regulatory frameworks evolve and consumer preferences shift toward reduced-risk products.

Governance And Influence

As part of the investment agreement, BAT now holds a 30% stake in Organigram’s common shares and a 100% stake in its non-voting preferred shares. This arrangement ensures that BAT maintains a level of control without surpassing regulatory thresholds that could trigger anti-competition concerns. Furthermore, BAT has secured the right to nominate up to 30% of Organigram’s board of directors, giving it substantial influence over the company’s strategic direction.

Organigram’s preferred shares, initially convertible on a one-to-one basis into common shares, are designed to increase in conversion rate by 7.5% per annum, a mechanism that allows BAT’s economic stake in Organigram to grow over time.

The Future Of Tobacco-Cannabis Collaborations

BAT’s sustained commitment to cannabis signals that the tobacco industry sees long-term value in cannabis-related products. With global cannabis legalization gaining traction, particularly in Europe and parts of the U.S., these investments position tobacco giants to capture market share in a new, potentially lucrative industry.

As BAT and its competitors continue to navigate regulatory landscapes and consumer demand, the synergy between tobacco expertise and cannabis innovation will likely lead to the development of new product categories, including cannabis-infused vape products and medical formulations. The continued investment in companies like Organigram suggests that big tobacco is not just experimenting with cannabis, it’s preparing for a future in which cannabis products could rival traditional nicotine offerings.

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