Accelerates Organigram’s R&D and product
pipeline development, provides meaningful capital injection of
~C$221 million and strengthens Organigram’s ability to compete in
existing markets and expand into U.S. and internationally
Organigram Holdings Inc. (“OGI”, TSX: OGI and NASDAQ: OGI) is
pleased to announce a C$221 million strategic investment from a
wholly-owned subsidiary of BAT (LSE:BATS and NYSE:BTI). The BAT
subsidiary has subscribed for approximately 58.3 million common
shares of OGI, which represents a 19.9% equity interest1 on a
post-transaction basis for total proceeds of approximately C$221
million (“Investment Proceeds”) at a price per share of C$3.792,
based on a five-day volume weighted average price on the TSX ending
March 9, 2021.
Organigram Inc., a leading licensed cannabis producer and a
subsidiary of Organigram Holdings Inc. (together, “Organigram” or
“the Company”), and BAT have also entered into a Product
Development Collaboration Agreement (the “PDC Agreement”) pursuant
to which a “Center of Excellence” will be established to focus on
developing the next generation of cannabis products with an initial
focus on CBD. The Center of Excellence will be located at
Organigram’s indoor facility in Moncton, New Brunswick, which holds
the Health Canada licenses required to conduct research and
development (“R&D”) activities with cannabis products. Both
companies will contribute scientists, researchers, and product
developers to the Center of Excellence which will be governed and
supervised by a steering committee consisting of an equal number of
senior members from both companies. Under the terms of the PDC
Agreement, both Organigram and BAT have access to certain of each
other’s intellectual property (“IP”) and, subject to certain
limitations, have the right to independently, globally
commercialize the products, technologies and IP created by the
Center of Excellence pursuant to the PDC Agreement.
“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,” said Greg Engel, Chief Executive
Officer of Organigram. “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.”
Dr. David O’Reilly, Director, Scientific Research at BAT,
commented: “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 alternatives2
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.”
Strategic Rationale for the Deal
BAT’s investment in Organigram and the PDC Agreement is expected
to strengthen Organigram’s balance sheet, accelerate its R&D
program and product development activities and bolster its ability
to enter the U.S. and other international markets. “In our view,
the cannabis industry is still in the nascent stages of product
development. We believe that product innovation backed by core
fundamental R&D is necessary to establish a long-term
competitive advantage in the cannabis industry,” stated Paolo De
Luca, the Company’s Chief Strategic Officer. “This strategic
collaboration strengthens our ability to deliver innovative,
differentiated products that appeal to adult consumers and we
expect it to be transformational for Organigram and its
shareholders.”
Organigram believes BAT’s investment and the PDC will benefit
the Company as follows:
- Accelerates and strengthens Organigram’s R&D and product
development activities, including granting access to certain
BAT-owned IP. The Center of Excellence provides Organigram the
opportunity to closely collaborate with BAT, a leading global
consumer business with extensive expertise and experience in
R&D, on the development of innovative and differentiated
cannabis products, IP and technologies. The significant injection
of capital from BAT also enables Organigram to further invest in
its own R&D and product development activities. In addition,
Organigram will gain access to certain BAT IP for the purpose of
undertaking R&D activities under the PDC Agreement.
- Raises significant capital to invest in growth opportunities,
including entering the United States and other international
markets. With the significant capital injection, Organigram is even
better positioned to expand into the U.S. and further international
markets at the appropriate time and subject to applicable law. Upon
closing, Organigram will have pro-forma cash and short-term
investments of approximately C$296 million (of which approximately
C$30 million will be reserved in order to satisfy certain of
Organigram’s obligations under the PDC Agreement and the balance of
which can be used, among other things, for growth opportunities and
other strategic investments including advancing Organigram’s
international strategy). Under the PDC Agreement, the Company will
be granted a worldwide, royalty-free, sub-licensable, perpetual
license to exploit IP developed under the PDC in any field. This
license which is non-exclusive outside of Canada and sole in Canada
will also enhance Organigram’s ability to enter markets outside of
Canada, including through sublicensing arrangements with
established operators.
- Allows Organigram to leverage BAT’s expertise for its wider
operations through the Centre of Excellence and BAT’s
representation on Organigram’s Board of Directors (“Board”). BAT is
a leading consumer goods business with tremendous expertise and
experience accumulated over more than a century in research and
development and product innovation. Organigram will be provided
direct access to BAT’s expertise through the Center of Excellence
staff seconded from BAT (including members of the steering
committee which will oversee the Center of Excellence, as well as a
group of scientists, researchers, and product developers). BAT is
also entitled to add two Board members to Organigram’s Board. At
closing, Organigram added one BAT nominee, Mr. Jeyan Heper, to its
Board and another nominee is expected to be added in the near
term. Mr. Heper, who is a Group Category Director at BAT, has over
23 years of diverse management, strategic leadership, and mergers
and acquisitions experience at global companies including BAT,
Procter & Gamble, Danone and LifeStyles Healthcare. His
expertise includes growing value and volume share through global
brand and equity building and consumer marketing. Both nominees are
expected to bring deep R&D, product and strategic expertise to
further complement Organigram’s existing Board capabilities as well
as extend its international presence. Further particulars
regarding BAT’s second nominee and that nominee’s credentials will
be provided upon appointment.
Key Transaction Terms
Investor Rights
Contemporaneously with the closing, Organigram and BAT entered
into an investor rights agreement (the “Investor Rights Agreement”)
providing BAT with certain rights including its right to
participate in equity issuances to maintain its percentage
shareholding, subject to customary exceptions, and periodic top-up
rights to permit maintenance of its percentage ownership following
exempt issuances.
The Investor Rights Agreement also includes customary pro rata
piggy-back registration rights in favour of BAT, and certain share
transfer restrictions for BAT’s shareholding interests in OGI.
Board Representation
BAT’s board representation rights under the Investor Rights
Agreement, entitle BAT to appoint (i) 20% of the Board for so long
as it holds at least 15% of the issued and outstanding common
shares in OGI from time to time and (ii) 10% of the Board so long
as BAT holds at least 10% of the issued and outstanding common
shares of Organigram from time to time.
Product Development Collaboration
Pursuant to the terms of the PDC Agreement, approximately C$30
million of the Investment Proceeds shall be reserved in order to
satisfy certain of Organigram’s obligations under the PDC Agreement
(the “Allocated Investment Proceeds”), including Organigram’s
portion of its funding obligations under a mutually agreed budget
for the Center of Excellence, and then (together with the balance
of the net Investment Proceeds) for general corporate purposes,
subject to certain proceed restrictions. Costs relating to the
Center of Excellence will be funded equally by Organigram and
BAT.
Pursuant to the PDC Agreement, Organigram and BAT have agreed to
jointly develop cannabis vapour products, cannabis oral products
and any other products, IP or technologies the parties mutually
agree to develop. BAT will own all IP developed under this
collaboration and will grant to Organigram a royalty-free,
perpetual, global licence to all such IP. Each party has also
agreed to grant to the other a non-exclusive, perpetual and
irrevocable license to certain existing IP of such party and its
affiliates for purposes of conducting the development activities
and exploiting the products, technologies and IP created by the
Centre of Excellence pursuant to the PDC Agreement, subject to
certain restrictions.
Advisors
BMO Capital Markets acted as exclusive financial advisor to
Organigram and Goodmans LLP acted as its primary legal advisor with
DLA Piper as its European counsel.
Herbert Smith Freehills LLP and Stikeman Elliott LLP acted as
legal advisors to BAT.
Conference Call and Webcast
The Company will host a conference call and webcast to discuss
this announcement:
Date:
March 11, 2021
Time:
8:00am Eastern Time
To register for the conference call, please use this link:
http://www.directeventreg.com/registration/event/7066166
To ensure you are connected for the full call, we suggest
registering a minimum of 10 minutes before the start of the call.
After registering, a confirmation will be sent through email,
including dial in details and unique conference call codes for
entry. Registration is open through the live call.
To access the webcast:
https://event.on24.com/wcc/r/3068403/48F2A5FBA0B5C6B4184DD6205BE8A259
A replay of the webcast will be available within 24 hours after
the conclusion of the call at https://www.organigram.ca/investors
and will be archived for a period of 90 days following the
call.
About Organigram Holdings Inc.
Organigram Holdings Inc. is a NASDAQ Global Select and TSX
listed company whose wholly owned subsidiary, Organigram Inc., is a
licensed producer of cannabis and cannabis-derived products in
Canada.
Organigram is focused on producing high-quality, indoor-grown
cannabis for patients and adult recreational consumers in Canada,
as well as developing international business partnerships to extend
the Company’s global footprint. Organigram has also developed a
portfolio of legal adult use recreational cannabis brands including
The Edison Cannabis Company, SHRED and Trailblazer. Organigram’s
facility is located in Moncton, New Brunswick and the Company is
regulated by the Cannabis Act and the Cannabis
Regulations (Canada).
About BAT
BAT is a leading, multi-category consumer goods business,
established in 1902. Our purpose is to build A Better Tomorrow™ by
reducing the health impact of our business which entails:
- Committing to providing adult consumers with a wide range of
enjoyable and less risky products
- Continuing to be clear that combustible cigarettes pose serious
health risks, and the only way to avoid these risks is not to start
or to quit
- Encouraging those who otherwise continue to smoke, to switch
completely to scientifically-substantiated, reduced-risk
alternatives**
- Tracking and sharing progress of our transformation
BAT has announced a target of increasing the number of its
non-combustible product consumers to 50 million by 2030; and to
achieve at least £5 billion in New Categories revenues in 2025.
** Based on the weight of evidence and assuming a complete
switch from cigarette smoking. These products are not risk free and
are addictive.
Forward-Looking Information
This news release contains forward-looking information. Often,
but not always, forward-looking information can be identified by
the use of words such as “plans”, “expects”, “estimates”,
“intends”, “anticipates”, “believes” or variations of such words
and phrases or state that certain actions, events, or results
“may”, “could”, “would”, “might” or “will” be taken, occur or be
achieved. Forward-looking information involves known and unknown
risks, uncertainties and other factors that may cause actual
results, events, performance or achievements of Organigram to
differ materially from current expectations or future results,
performance or achievements expressed or implied by the
forward-looking information contained in this news release. Risks,
uncertainties and other factors involved with forward-looking
information could cause actual events, results, performance,
prospects and opportunities to differ materially from those
expressed or implied by such forward-looking information include
factors and risks as disclosed in the Company’s most recent annual
information form, management’s discussion and analysis and other
Company documents filed from time to time on SEDAR (see
www.sedar.com) and filed or furnished to the Securities and
Exchange Commission on EDGAR (see www.sec.gov). In addition, there
can be no assurance that the collaboration will enhance
Organigram’s ability to enter international markets, result in the
development of successful new products, or otherwise achieve the
anticipated benefits. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of the date of this press release. Although the Company believes
that the assumptions and factors used in preparing the
forward-looking information in this news release are reasonable,
undue reliance should not be placed on such information and no
assurance can be given that such events will occur in the disclosed
time frames or at all. The forward-looking information included in
this news release are made as of the date of this news release and
the Company disclaims any intention or obligation, except to the
extent required by law, to update or revise any forward-looking
information, whether as a result of new information, future events
or otherwise. The descriptions of the terms of the agreements
referenced in this release are qualified by the terms of the
agreements themselves, copies of which shall be filed under
Organigram’s profile on SEDAR (see www.sedar.com) and filed or
furnished to the Securities and Exchange Commission on EDGAR (see
www.sec.gov).
1 Calculated on a non-diluted basis 2 Reduced Risk is based on
the weight of evidence and assuming a complete switch from
cigarette smoking to these products. These products are not risk
free and are addictive.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210311005397/en/
For Investor Relations enquiries, please contact: Amy Schwalm
Vice President, Investor Relations amy.schwalm@organigram.ca (416)
704-9057 For Media enquiries, please contact: Marlo Taylor
mtaylor@gagecommunications.ca
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