Tobacco giant Imperial Brands is getting into the Canadian cannabis market.
Imperial Brands has announced that it signed a $123-million investment deal with Auxly Cannabis Group (TSX-Venture:XLY) that includes a research and development partnership and gives Auxly the global licences to its vaping technology.
The deal announced Thursday would give London-based Imperial Brands a 19.9% stake through a debenture convertible into Auxly equity, with a conversion price of 81 cents per share.
That is 11% higher than Auxly Cannabis' share price on the TSX Venture Exchange of 73 cents.
Shares of Auxly, which has a portfolio of cannabis brands, jumped by more than 20% on news of the deal. The additional capital will fuel Auxly's plans to roll out next-generation cannabis products, such as vapes, when legalized in Canada later this year, the company said in a news release.
Imperial, whose tobacco brands include Winston and Davidoff cigarettes, will have the right to convert the debt into stock at any time during a three-year period. If at the end of the term Imperial has not converted, the debenture will be repayable in full.
Imperial said that diversifying its portfolio of next-generation products with this investment in Auxly Cannabis provides the tobacco company with further options for future growth and builds on its investment last year in Oxford Cannabinoid Technologies.
Last December, Marlboro maker Altria Group Inc. (NYSE:MO) announced a $2.4-billion investment in Canadian cannabis producer Cronos Group (TSX:CRON) Inc. to acquire a 45% ownership stake, and the option to invest a further $1.4 billion within four years to up its stake to 55%.
Alcohol giant Constellation Brands (NYSE:STZ) has invested more than $5 billion in Canopy Growth Corp., (TSX:WEED) giving it a 38% stake in the Smiths Falls, Ont.-based cannabis company.
