In a move which is perhaps the clearest indication to date of the increasing normalisation of marijuana use, British American Tobacco (BAT) is to buy a stake of some 20% in Canada-based cannabis producer Organigram for about £126 million ($176 million).
Organigram grows cannabis and makes cannabis-derived products in Canada, where marijuana was legalised in 2018.
The move comes at an opportune time for the North American cannabis market as leading Democratic lawmakers in the United States are promising to decriminalise marijuana use, while analysts and experts predict record investment in the industry this year.
“Through the collaboration, BAT will gain access to cutting-edge R&D technologies, product innovation and cannabis expertise, complementing BAT’s extensive plant-based expertise and development capabilities,” the company said.
It added that Organigram has a proven track record of “consumer-led innovation and developing high quality adult-use recreational and medical cannabis products,” which are legally available in Canada.
As part of the agreement, a ‘Centre of Excellence’ will be established to focus on developing the next generation of cannabis products with an initial focus on CBD.
It will be located at New Brunswick, Canada, which holds the Health Canada licenses required to conduct R&D activities with cannabis products.
Global market growth
According to recent research, the global legal marijuana market size was valued at $17.5 billion in 2019 and is predicted to reach market value around $65.1 billion by 2027 expanding at a compound annual growth rate (CAGR) of around 17.8% during the period 2020 to 2027, with further growth on the horizon:
“In the US, around 33 states have endorsed marijuana in some capacity, creating new employment and economic openings within the legal marijuana industry. With more states anticipated to advance cannabis legalization actions in the years to come, and federal lawmakers seeing restructuring legislation, more Americans will soon be able to legally access cannabis.”
Despite such moves as that by BAT, the increasing growth in the US legal cannabis market is still not being matched by access to insurance for the industry’s risks, according to a recent report.
Specialist intermediary New Dawn Risk Group issued a white paper last year analysing insurance cover for the US legal cannabis, CBD and hemp markets, and raised concerns over the impact of COVID-19 and the need for greater access for underwriters.
The report: “Understanding and opening up the US cannabis insurance market”, examines both the potential premiums and the size of the insurance gap for cannabis-related products in the US.
The study found that recent annual sales of medical and recreational cannabis in the US were nearly nine times higher than sales of Oreo cookies.
If the sector were insured to levels normal for other businesses, it suggested, the legal US cannabis industry would pay about $1 billion in annual premiums.
Meanwhile Britain is set to see the greatest cannabis medical market growth rate in Europe between 2020-2025.
According to a recent report, European Cannabis 2020, by international cannabis market research firm Brightfield Group, expectations to allow for domestic cultivation and general practitioners prescribing in the coming years will result in a 2020-2025 compound annual growth rate (CAGR) of 98%.
In 2020, Europe’s cannabis market is projected to reach $359m (£269m) in 2020, a rise of 25% from 2019, and will grow to over $3.1bn by 2025, with a 2020-2025 CAGR of 52%.
In Europe, Germany currently has the largest medical cannabis market with projected sales of $267m in 2020 and is expected to make up to a $2.1bn market by 2025.
As Brightfield Group pointed out, however, Europe’s medical cannabis market “is still rather small” when compared with the likes of the US.