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    BATS   GB0002875804

BRITISH AMERICAN TOBACCO PLC

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BAT looks beyond tobacco to Canadian marijuana

03/11/2021 | 10:31am EDT
FILE PHOTO: Signage is seen at the London offices of British American Tobacco, in London, Britain

(Reuters) - British American Tobacco said on Thursday it will buy a nearly 20% stake in Canada-based cannabis producer Organigram for about 126 million pounds ($175.8 million) as it seeks to expand 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.

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 will give BAT access to R&D technologies, product innovation and cannabis expertise, it said in a statement, with an initial focus on natural remedy cannabidiol (CBD).

"This move takes us into a new space and we are not ruling out any product innovation," David O'Reilly, director of Scientific Research at BAT, told Reuters.

Organigram Chief Executive Greg Engel said the companies will jointly develop new products for cannabis delivery, both oral and vapour based, and will be able to commercialise any products developed under their own brands.

Both BAT and Organigram will contribute scientists, researchers, and product developers, BAT said. It will become Organigram's largest shareholder and can appoint two directors to its board.

NATURAL FIT

"We view this move as a strong positive. Cannabis overall provides a natural fit for tobacco and a big incremental growth opportunity," Jefferies analyst Owen Bennett wrote in an note.

BAT has expertise in operating in a regulated environment and experience of growing a crop similar to hemp CBD, Bennett said, adding that the timing of the deal before Organigram's possible entry into the United States is also a big positive.

Bennett estimates U.S. CBD market sales of over $16 billion by 2025.

Organigram's U.S.-listed shares surged around 30% to $3.75 in morning trading on the Nasdaq. BAT's London-listed shares were up slightly.

BAT's investment comes two days after the Lucky Strike maker laid out environmental, social and governance (ESG) targets, including switching more people to less harmful products.

The group aims to achieve at least 5 billion pounds in revenue from sales of e-cigarettes, tobacco heating and oral nicotine products in 2025.

Elsewhere in the industry, Marlboro maker Altria has invested in pot producer Cronos Group Inc, while Corona beer-maker Constellation Brands Inc has a stake in Canopy Growth, the largest cannabis company globally by market value.

($1 = 0.7167 pounds)

(Reporting by Tanishaa Nadkar, Aby Jose Koilparambil, Shariq Khan and Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty, Kirsten Donovan and Jan Harvey)

By Shariq Khan and Siddharth Cavale


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
ALTRIA GROUP, INC. 1.18% 48.81 Delayed Quote.19.05%
AURORA CANNABIS INC. 1.56% 7.79 Delayed Quote.-27.64%
AUXLY CANNABIS GROUP INC. -1.92% 0.255 Delayed Quote.0.00%
BRITISH AMERICAN TOBACCO PLC -0.43% 2654.5 Delayed Quote.-1.38%
CANOPY GROWTH CORPORATION 1.82% 18.43 Delayed Quote.-41.16%
CONSTELLATION BRANDS, INC. 1.29% 214.02 Delayed Quote.-2.30%
CRONOS GROUP INC. 1.20% 7.6 Delayed Quote.-14.03%
HEXO CORP. 0.00% 2.46 End-of-day quote.-34.69%
NASDAQ COMP. 1.04% 15052.243848 Real-time Quote.14.42%
ORGANIGRAM HOLDINGS INC. 4.26% 3.18 Delayed Quote.88.17%
SUPREME CANNABIS 1.52% 0.335 End-of-day quote.112.90%
THE GREEN ORGANIC DUTCHMAN HOLDINGS LTD. 0.00% 0.18 Delayed Quote.-23.40%
TILRAY, INC. 3.35% 12.02 Delayed Quote.45.52%
TILRAY, INC. -5.59% 16.55 End-of-day quote.88.07%
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Financials
Sales 2021 25 565 M 35 042 M 35 042 M
Net income 2021 6 967 M 9 550 M 9 550 M
Net Debt 2021 38 230 M 52 402 M 52 402 M
P/E ratio 2021 8,61x
Yield 2021 8,15%
Capitalization 61 117 M 83 938 M 83 773 M
EV / Sales 2021 3,89x
EV / Sales 2022 3,65x
Nbr of Employees 56 689
Free-Float 86,2%
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Mean consensus BUY
Number of Analysts 20
Last Close Price 2 670,50 GBX
Average target price 3 506,20 GBX
Spread / Average Target 31,3%
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Managers and Directors
Jack Marie Henry David Bowles Chief Executive Officer & Executive Director
Tadeu Luiz Marroco Executive Director & Finance Director
Luc Jobin Chairman
David O'Reilly Director-Scientific Research
Marina Fagundes Bellini Director-Digital & Information