BAT Enters Strategic R&D Collaboration To Accelerate ‘Beyond Nicotine’ Strategy With Organigram

BAT Enters Strategic R&D Collaboration To Accelerate 'Beyond Nicotine' Strategy With Organigram
BAT Group

BAT Group today announces the signing of a strategic collaboration agreement with Organigram Inc., a wholly-owned subsidiary of publicly-traded Organigram Holdings Inc. (collectively Organigram), focused on research and product development activities of next-generation adult cannabis products, with an initial focus on cannabidiol (CBD).

This agreement augments ongoing BAT activities to expand its portfolio ‘beyond nicotine’ and follows the pilot launch of Vuse CBD Zone in Manchester, UK earlier this year. The collaboration reinforces BAT’s consumer-centric multi-category approach, which has seen continued momentum and growth as BAT focuses on delivering on its purpose of building A Better Tomorrow™.

Through the collaboration, BAT will gain access to cutting-edge R&D technologies, product innovation and cannabis expertise, complementing BAT’s extensive plant-based expertise and development capabilities.

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. By leveraging Organigram’s first-hand experience, BAT will deepen its understanding of this rapidly expanding and evolving area.

Dr David O’Reilly, Director Scientific Research at BAT, comments: “Today’s announcement underscores our commitment to accelerating our transformation and building A Better Tomorrow. Our multi-category, consumer-centric approach, which is key to our transformation, aims to provide choice and meet the evolving needs of adult consumers.

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.

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“We believe this collaboration has significant potential to enhance our activities, allowing us to combine our world-class expertise while enabling scientists from both BAT and Organigram to work closely together and share information real-time. We know that in R&D this is how you make real breakthroughs and accelerate progress.

“We have been impressed by the strong management team and culture at Organigram. This collaboration aligns with our long-term strategy, and will enable us to work with Organigram at an R&D level, as well contributing to their wider operations.”

Greg Engel, Chief Executive Officer of Organigram, comments: “This is a tremendous milestone in the evolution of Organigram. It is instrumental in advancing our commitment to offering consumers innovative cannabis products and to furthering our long-term international strategy.

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We have been extremely selective about aligning with a strategic partner and, in BAT, we’ve found a leading consumer goods business with innovative product platforms, an impressive dedication to research and development, deep consumer insights, regulatory expertise and a commitment to responsible stewardship and consumer safety.”

Deal Terms

To operationalise the ‘Product Development Collaboration Agreement’ (PDC) a “Centre of Excellence” will be established to focus on developing the next generation of cannabis products with an initial focus on CBD.

The Centre of Excellence will be located at Organigram’s indoor facility in New Brunswick, Canada, which holds the Health Canada licenses required to conduct R&D activities with cannabis products. Both BAT and Organigram will contribute scientists, researchers, and product developers to the Centre of Excellence which will be governed and supervised by a steering committee consisting of an equal number of senior members from each of BAT and Organigram. Both partners share a commitment to continue to maintain the highest regulatory and ethical standards.

As part of the transaction, BAT and Organigram will grant each other a licence to certain intellectual property to enable the development of new and potentially disruptive, novel products. Both parties will have the ability to independently commercialise any products developed as a result of the collaboration under their own brands.

Under the terms of the transaction, a BAT subsidiary will acquire a 19.9% equity stake in Organigram Holdings Inc. (listed on both the Nasdaq and Toronto Stock Exchange under the symbol “OGI”) to become the largest shareholder, with the ability to appoint two directors to Organigram Holdings Inc.’s board of directors and representation on its investment committee. At closing, one BAT nominee, Mr. Jeyan Heper, was added to the board and another nominee is expected to be added in the near term.

The investment, valued at approximately £126 million, was priced at C$3.79 per share which was based on the five-day volume-weighted average price of Organigram Holdings Inc.’s shares on the Toronto Stock Exchange ending March 9, 2021 and represents a discount to the closing price of C$3.94 on March 9, 2021.

These funds will provide a significant injection of capital for Organigram that will enable them to expand and accelerate their R&D and product development activities, and support business expansion.