Organigram soars 38% after British American Tobacco invests $177 million in the cannabis producer

• Organigram stock spiked as much as 38% on Thursday after British American Tobacco invested in the cannabis producer.
• BAT will invest $176 million in Organigram for a 19.9% equity stake in the Canadian-based firm.
• Both companies have entered into a collaboration agreement in which they will develop next generation CBD products.
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Shares of Organigram soared as much as 38% on Thursday after British American Tobacco invested $176 million into the Canada-based cannabis producer for a 19.9% equity stake in the firm.

The strategic investment will accelerate Organigram's research and development and product pipeline development, with both companies entering into a product collaboration agreement. The two firms' first collaborative product venture will be in the CBD space.

Both companies will contribute scientists, researchers, and product developers to the collaborative product initiative. The cash infusion into Organigram will also strengthen its balance sheet and put the company in a better position to compete in US markets.

"[The deal] is instrumental in advancing our commitment to offering consumers innovative cannabis products and to furthering our long-term international strategy, " CEO Greg Engel said in a press release.

Big tobacco has had its eyes on the cannabis industry for years, as it represents a potential new avenue for growth given that cigarette sales continue to broadly decline. Altria was the first big tobacco company to invest in the space after buying a stake of Cronos for more than $2 billion in 2018.