(Bloomberg) -- British American Tobacco Plc’s recent investment in Trait Biosciences Inc. offers intriguing clues about how Big Tobacco may capitalize on the growing cannabis market.
While tobacco companies are no stranger to marijuana, the expectation has been that they would gravitate toward things like vape or smokeable flower with THC. After all, inhalable products are their expertise.
But Trait’s strongest patents are for a technology that makes CBD water-soluble. That suggests BAT, the London-based maker of Vuse vaping products and Newport cigarettes, could move into other formats for cannabis consumption -- and even end up competing against beer companies.
BAT’s corporate-venture unit led the C$31 million ($25 million) investment in Canada’s Trait Biosciences last month. The deal calls for BAT to help commercialize the technology, which could be used in beverages to make the timing of the marijuana compound’s effects more predictable.
Neither BAT nor Trait would comment on whether the tobacco company has any specific plans to get into non-smokeable CBD products, or the beverage space in particular. But David O’Reilly, BAT’s head of scientific research, hinted at the possibility of new formats.
While the company is expanding its business in heated-tobacco products and vaping, he said, if consumers’ needs are better met with different products, “we’ll develop other platforms, which could be anything.”
A foray into beverages could put BAT in competition with large consumer-products companies, such as Molson Coors Beverage Co., which is developing cannabis drinks through a partnership with Hexo, and Corona beer maker Constellation Brands, which is developing cannabis drinks with Canopy Growth Corp.
Other formats for cannabis -- like CBD cigarettes or chewable products -- would pit the company against smaller firms run by former executives from the tobacco space. Taat International LLC, which makes hemp cigarettes, is overseen by Setti Coscarella, formerly a strategist for Philip Morris International’s reduced risk products. Cannadips, which makes oral pouch products similar to those in the tobacco space, has former Altria Group Inc. executive Peter Diatelevi as chief executive officer.
It’s still unclear what BAT, or Big Tobacco in general, really plans to do with CBD, cannabis’ non-psychoactive ingredient, or other weed-based products. That’s partly because marijuana is still not legal in many countries, and regulation has yet to take shape in others.
Tobacco companies are trying to expand their portfolios beyond nicotine as an increasing number of people quit smoking across the developed world, and cannabis is one promising market. BAT took a stake of around 20% in Canadian pot producer Organigram Holdings Inc. earlier this year. Altria invested in 2018 in Canadian marijuana producer Cronos Group Inc. and bigger rival Philip Morris International Inc. is beginning to take a closer look at the market.
BAT started a city test of CBD vaping products in the U.K. earlier this year that’s still ongoing. The company is focusing on CBD instead of THC -- the psychoactive ingredient -- and cannabis more broadly. There’s a growing demand for CBD products, O’Reilly noted.
While Trait has other specialties, like science to make marijuana plants more resistant to fungus or increase the yield of cannabinoids extracted, the water-soluble technology is drawing interest.
“They were interested for same reason I was, it’s a tremendous opportunity for new product development and building new brands in this territory,” Trait CEO Peter McDonough said in an interview.
NUMBER OF THE WEEK
- 1%: The allowable level of THC in CBD products sold in Switzerland, the highest amount of any European country, according to a recent report from New Frontier Data. France, by comparison, doesn’t allow any THC.
WHAT YOU NEED TO KNOW
- Mexico’s marijuana market could be worth $1.2 billion, former President Vicente Fox, a board member at cannabis company Khiron Life Sciences, said in an interview.
- Terra Tech Corp. and Umbrla Inc. closed their planned merger on Thursday, the same day Trulieve Cannabis Corp. announced it had closed on a deal to expand its presence in Pennsylvania. Jefferies sees more deals on the way. “With an estimated 27,000 plant-touching businesses currently in operation, the space is primed for further consolidation,” said Jefferies analyst Owen Bennett.
- Greenhouse owner GrowCo Inc. agreed to give up its Chapter 11 case, avoiding an upcoming trial over the federal government’s bid to toss out the bankruptcy because of the company’s connection to marijuana growers.
- Aurora Cannabis Inc. is free for now of allegations it made misleading statements about overproduction, limited retail stores and black market competition, a federal judge in New Jersey said. Investors have 30 days to file an amended complaint.
- Organigram Holdings Inc. reports third-quarter earnings before the market opens.
- Planet 13 Holdings Inc. holds its annual shareholder meeting.
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