The tobacco industry is betting big on cannabis. Today, Auxly Cannabis Group Inc. (TSX.V: XLY) (OTCQX: CBWTF) announced that the international tobacco company Imperial Brands PLC will make an investment in the company through a convertible debenture.
Under the agreement, Imperial Brands will make an investment of $123 million, granting the company a 19.9% ownership stake in Auxly. At $0.81 per share, the investment represents an 11% premium on Auxly’s closing share price on July 24, 2019. The debenture has a three-year term and an annual interest rate of 4%.
Imperial Brand is not the first tobacco company to invest in cannabis. Late last year, Altria Group Inc. (NYSE: MO), which owns the Marlboro cigarette maker Phillip Morris USA, purchased a 45% stake in Cronos Group Inc. (NASDAQ: CRON) for C$2.4 billion.
Given that tobacco sales have been on the decline for years, it would only make sense that companies such Imperial Brands and Altria would make investments in a growing industry like cannabis. Not only do their consumer bases often overlap, but also the tobacco industry already has a developed distribution, manufacturing, and cultivating infrastructure that could easily be converted to cannabis.
Once the transaction is complete, Auxly will gain the rights to Imperial Brands’ vaping technology and intellectual property. Auxly will also be given access to Imperial Brands’ vape business, Nerudia, which has a dedicated cannabis research team and a licensed research and development facility.
In addition to becoming the company’s exclusive partner for the future development of cannabis products, Imperial Brands has been given the ability to name one director nominee and one non-voting observer to Auxly’s Board of Directors.
“This investment from Imperial Brands will enhance Auxly’s ability to continue to deliver on our business plans and accelerate our growth initiatives to expand our portfolio of branded derivative products,” said Hugo Alves, President of Auxly. “The timing is ideal as we prepare to bring our portfolio of innovative cannabis products to the Canadian market following the legalization of edibles, extracts and topicals later this year.”