UK-based tobacco giant Imperial Brands plc (IMB.L, IMBBF.PK, IMBBY.PK) said it will invest C$123 million, or GBP 75 million, in Canadian cannabis company Auxly Cannabis Group Inc. The deal marks Imperial’s latest foray into the cannabis sector.
As part of the transaction, Imperial will invest 75 million pounds by way of a debenture that is convertible into a 19.9 percent stake in Auxly over a three-year term. Imperial will also grant Auxly global licences to its vaping technology and access to its vapor innovation business, Nerudia.
The transaction is expected to close in the third quarter of 2019. It builds on Imperial’s initial foray into the cannabis sector in June 2018, when it took a stake in Oxford Cannabinoid Technologies or OCT.
OCT is a biopharmaceutical company licensed by the UK Home Office that is focused on developing and licensing cannabinoid-based compounds and therapies.
Matthew Phillips, Imperial’s Chief Development Officer, said, “Diversifying our NGP portfolio with this investment provides Imperial with further options for future growth and builds on last year’s investment in Oxford Cannabinoid Technologies.”
Imperial Brands noted it’s investment will accelerate the delivery of Auxly’s business plan ahead of regulatory change to the Canadian cannabis market in October 2019.
After October 2019, the legal sale of derivative products, such as cannabis edibles, cannabis extracts like vapes, and cannabis lotions and oils will be permitted in Canada. Vaping products are widely expected to be the fastest growing segment of the derivative market.
The legal Canadian cannabis market, currently estimated to be worth C$3 billion a year, is forecast to grow to around C$10 billion by 2025. The market for derivative cannabis products is expected to be worth C$6 billion by 2025, Imperial Brands noted.
Under the deal, Auxly will receive global licences to Imperial’s vaping technology and research and development capabilities for cannabis use. Auxly will work closely with a small dedicated team from to develop a portfolio of new brands and products.
Imperial will receive one of five director positions and one non-voting observer on Auxly’s Board.
In addition, the Chair of Imperial’s Product Stewardship and Health Group will sit on Auxly’s Safety Board, which will have oversight of the controls in place to ensure the safety, efficacy, and quality of Auxly’s products.