OGI Stock: Organigram Flies on BAT Investment & Partnership

OrganiGram Holdings Inc (NASDAQ: OGI) is running for the top in the market this morning, and for good reason. The company announced an investment from British American Tobacco, surrounding the development of CBD-related products. Here’s what’s going on:

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OrganiGram Receives Investment from British American Tobacco

As mentioned above, OrganiGram is flying in the market today after announcing that it received a large investment. The investment came from a subsidiary of British American Tobacco. 

That subsidiary decided to purchase 58.3 million shares of OGI, representing a 19.9% equity interest in the company. So, what did OrganiGram get in return for all those shares? About C$221 million, at a price per share of C$3.792. 

For those of you who haven’t been following the company, OrganiGram is a licensed cannabis producer in Canada. So, what does British American Tobacco want with the company?

The two parties have entered into a Product Development Collaboration Agreement. Under the agreement, a Center of Excellence will be established, focusing on developing the next generation of cannabis products with the initial focus of the Center being on CBD. 

OGI went on to explain that the Center of Excellence will be located at its indoor facility in New Brunswick, which holds the Health Canada licenses needed for research and development activities surrounding cannabis products. 

The company went on to say that both parties have agreed to contribute scientists, researchers, and product developers to the Center. 

Management Commentary

In a statement, Greg Engel, CEO at OGI, had the following to offer:

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. 

We have been extremely selective about aligning with a strategic partner and, in BAT, we’ve found a leading consumer goods business with sophisticated management, innovative product platforms, an impressive dedication to research and development, deep consumer insights, regulatory expertise and a commitment to responsible stewardship and consumer safety among many other enviable attributes. This collaboration is the culmination of extensive discussions and workshops and in-depth due diligence.

The above statement was followed up by Dr. David O’Reilly, Director of Scientific Research at British American Tobacco. Here’s what he had to offer:

Today’s announcement underscores BAT’s 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. Choice that provides reduced risk alternatives to combustible cigarettes, as well as going beyond tobacco and nicotine into new and exciting areas of product innovation.

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.

What Analysts Think About OGI Stock

Analysts ultimately have a relatively mixed opinion of OrganiGram stock. In fact, according to TipRanks, there are nine analysts covering the stock, three of which rate it a Buy, one of which rates it a Sell, and five of which rate it a Hold. 

Price targets on the stock range from $1.51 to $3.57, with a median target of $2.36. While the price target represents a potential downside, and analyst opinions are mixed, the fact of the matter is that today’s deal is massive, and completely changes the game. As such, I’m expecting to see price target increases and upgrades ahead. 

Final Thoughts

All in all, the news released by OrganiGram this morning proved to be overwhelmingly positive. After all, the announcement means that the company will enjoy a much stronger balance sheet while taking part in a partnership with a massive player in the tobacco game.

All told, this could be a pivotal moment for the company, suggesting significant potential for growth in OGI stock. 

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