Organigram's stock soars as British American Tobacco invests $91.3 million

By Steve Gelsi and Ciara Linnane

Organigram plans to use most of the money to shop for deals to expand its geographic footprint

Shares of Canadian cannabis company Organigram Holdings Inc. soared more than 20% Monday, after the company said it is getting a fresh C$124.6 million ($91.3 million) investment from British American Tobacco Plc, with plans to hunt for deals in the down-beaten space.

The move comes after cannabis company's valuation and stock price have fallen as the Canadian market has grappled with oversupply and cannabis companies' scramble for cash.

"The opportunity set within the cannabis space has grown significantly," Organigram said. "The category continues to expand globally as more adult consumers incorporate cannabis into their lives. The competitive nature of the industry also means that the opportunity for investments is ample for companies with strong balance sheets, industry experience and a proven track record of M&A success."

Organigram (CA:OGI) (OGI) plans to use C$83.1 million of the investment from British American Tobacco Plc (UK:BATS) to create "Jupiter," an investment pool for emerging growth opportunities aimed at growing Organigram's geographic footprint.

The remaining C$41.5 million be used for general corporate purposes.

Organigram's stock rose 21% to $1.41 a share, but provided no lift to other Canadian cannabis companies, which mostly moved lower after rises early in the session.

Tilray Brands Inc. (TLRY) dipped by 3.7%, Canopy Growth Corp. (CGC) dropped by 6%, TerrAscend Corp. (TSNDF) fell by 2.2%, SUNDL Inc. (SunDial Growers) (SNDL) dropped by 3.9% and Aurora Cannabis Inc. (ACB) fell back by 2.2%.

The investment will raise British American Tobacco's stake in Organigram to 45% including non-voting preferred shares, up from 20%. The companies started collaborating in 2021.

Jefferies analyst Owen Bennett reiterated a buy rating on Organigram and said the deal comes after British American Tobacco made an investment in German cannabis company, Sanity, in 2022.

Bennett said the two companies could be taking aim at the much larger U.S. market.

"While OGI right now can't get exposure to [the U.S.] market due to current legal status, this may now change in the next 12-24 months," Bennett said. "We believe the U.S. -- from a cannabis value creation perspective -- really is the holy grail, so we find it interesting BAT has provided this additional investment at this time."

Organigram said the investment from British American Tobacco furthers its support of the company "as a trusted partner and accelerates the focus on innovative cannabis science and R&D outside of combustibles."

A product-development collaboration is now in late-stage development of emulsions, vapor formulations, new flavors and packaging to be applied to Organigram products in 2024.

Organigram's stock has fallen 64% in the year to date, while the AXS Cannabis ETF (THCX) has fallen 36% and the S&P 500 has gained 13.5%.

Along with British American Tobacco, other big corporations have already waded into the cannabis space.

Altria (MO) owns a stake in Cronos Group (CRON) (CA:CRON), and Constellation Brands Inc. (STZ) has invested billions in Canopy Growth Corp. (CGC).

Imperial Bands (IMBBY) has invested in Canada's Auxly Cannabis Group (CBWTF).

-Steve Gelsi -Ciara Linnane

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11-06-23 1305ET

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