LAST week Berlin-based cannabis operator Sanity Group closed Europe’s largest ever cannabis investment round worth €37.6m, bringing its total funding to date to over €100m.
While the Series B round saw long term investors like Casa Verde Capital increase their holding, it was notably led by tobacco giant British American Tobacco (BAT), marking its second cannabis investment in less than a month.
News of the investment is already reported to have seen a torrent of new financial interest flood into the already highly-coveted German cannabis market, and BAT’s commitment is expected to see more big-tobacco money enter the space.
While the tobacco industry may be able to provide a chunk of the institutional investment the industry has been crying out for, some investors are likely to remain cautious of conflicts of interest between big-tobacco and medical cannabis.
Europe’s Largest Cannabis Investment
The Series B marks the second instance Sanity Group has been able to claim to be the recipient of the largest European cannabis investment, following a €35m Series A capital raise in June 2021.
While last week’s round was slightly bigger in financial terms, against the backdrop of the global financial and market turmoil endured through much of 2022, it is a far larger achievement.
It speaks not only to the growing confidence in the economic viability of Germany cannabis companies, but also to the slow-but-steady introduction of institutional capital into the European cannabis space.
One German medical cannabis operator told BusinessCann that in the days after the investment was announced, they had seen interest in partnerships and investment ‘increase tremendously’, receiving more requests for conversations ‘than hours in the day’.
They added that the BAT deal was an ‘important sign for the German market and for the whole industry’, and especially ‘important for us to see’ amid the widespread financial challenges facing European businesses.
Asked whether big-tobacco could become key to bringing in the institutional investment the European cannabis industry needs, Sanity Group’s Founder and Chief Executive Officer Finn Age Hänsel said: “I don’t think that the engagement of tobacco (Altria in Chronos, BAT in Organigram in us) or alcohol (e.g. Canopy Growth with Constellation brands) will single-handedly transform the industry.
“What it does show though is that more large stock-market listed corporations are taking the cannabis industry and the regulatory changes seriously and that is one step of hopefully many to come that will bring the industry forward.”
British American Tobacco
BAT has been making investments into the cannabis space for a number of years, but appears to have ramped up its activity in recent months.
In February 2021 BAT made its first foray into the sector after adding a CBD option to its Vuse vaping range, which it has been growing since 2013.
This tentative step was soon followed up by a far bolder move a month later, seeing BAT purchase a near 20% stake in Canadian adult-use cannabis firm Organigram for £126m.
The deal formed part of BAT’s ambitions to diversify beyond its sales of Dunhill, Lucky Strike and Benson & Hedges cigarettes, and saw the pair commit to the creation of a ‘centre for excellence’ to focus on the development of ‘next-generation’ cannabis products.
Continuing its focus on the North American market BAT, via its corporate venture arm Btomorrow Ventures, led an £18m Series A financing round in Vancouver-based Trait Biosciences.
In early September 2022, BAT announced a further North American investment in California-based cannabis and nicotine vape brand Kanvas, though the terms of the transaction were not disclosed.
Its investment in Sanity Group just weeks later, marked the first major investment into a European cannabis company, stating in a press release that it ‘adds a European dimension to one of the many BAT explorations beyond nicotine.’
It is far from the only big-tobacco company to branch into the cannabis space, with Altria, Imperial Brands, and Phillip Morris also staking their claim in the burgeoning sector.
As Prohibition Partners’ Barbara Pastori told BusinessCann last year, the tobacco industry shares many synergies with the cannabis industry, and provides an opportunity for these companies to ‘reinvent themselves to survive’.
This symbiotic relationship makes perfect business sense, offering cannabis access to funding and established supply chains, and tobacco a new more health-friendly product.
However, medical cannabis companies who continue their struggle to convince the mainstream medical world that cannabis can be an effective treatment for a host of severe conditions, are likely to face scrutiny should a growing stake of their business be owned by big-tobacco.
These concerns, it seems, were not shared by Mr Hänsel, who told BusinessCann: “BAT is a purely financial investor like many others in this round – and neither has a majority nor a controlling stake in the company.
“I am rather happy that tobacco companies are going to invest their money into topics that bring a benefit to society such as medical research and in that context, we have not received negative feedback so far.”