Organigram Holdings Inc. (OGI.TO) (OGI) announced a transformation development and reported to have receive a C$221 million strategic investment from a wholly-owned subsidiary of British American Tobacco (LSE: BATS) (NYSE: BTI).

According to the terms of a strategic investment agreement, BAT’s subsidiary reported to have subscribed for approx. 58.3 million common shares of Organigram (represents a 19.9% equity interest on a post-transaction basis) at C$3.79 each for approx. $221 million of total proceeds.

As part of the transaction, the companies entered into a product development collaboration (PDC) agreement. As part of the agreement, a center of excellence will be established to focus on developing the next generation of cannabis products with an initial focus on cannabidiol (CBD). The center will be located at Organigram’s indoor facility in New Brunswick which holds the necessary licenses from Health Canada to conduct research and development (R&D) activities with cannabis products.

One of the reasons we are excited about the development is related to what both BAT and Organigram add to the partnership. Both companies will contribute scientists, researchers, and product developers to the center of excellence. Under the terms of the PDC agreement, both Organigram and BAT have access to certain of each other’s intellectual property (IP) and we are favorable on the amount of value and synergies that can be found between the businesses.

BAT is considered to be a leading consumer goods business that has a sophisticated management team, an innovative product platform, and an impressive track record of success. We believe the relationship will play a key role in the evolution of Organigram and the advancement of the business.

BAT’s investment is expected to strengthen Organigram’s balance sheet, accelerate its R&D program as well as its product development activities and improve its ability to enter the US cannabis market and other international markets. We believe the strategic collaboration strengthens Organigram’s ability to bring innovative, differentiated products that appeal to recreational consumers and are favorable on the amount of value that can be created through it.

From the board room to the balance sheet, Organigram’s relationship with BAT is expected to have a significant impact on the business. We expect the companies to execute on attractive verticals of the global cannabis market and believe that our readers need to be aware of this achievement.