While most investors are losing interest in the cannabis space, British American Tobacco, or BAT (NYSE: BTI) as it is now known, appears to be taking a deeper look now that valuations aren’t so lofty. The company this morning revealed that it has taken a stake in Charlotte’s Web Holdings (TSX: CWEB).
The stake comes from a US$56.8 million investment into Charlotte’s Web, which BAT is conducting via a subsidiary. The investment takes the form of a convertible debenture, which if converted, would equate to a 19.9% ownership position in the company. The debt is convertible at BAT’s discretion.
The debt is unsecured, and is set to mature November 14, 2029. Interest will accrue at a rate of 5% per annum, with a step-down feature included that would see the interest rate fall to 1.5% should the US change its laws surrounding CBD, allowing it to be used as an ingredient in food products and dietary supplements.
With the debenture amounting to C$75.3 million, the debt will convert at a price of $2.00 per share.
BAT will have the right to nominate directors for 20% of the board, while they also maintain certain top-up rights and certain pre-emptive rights related to the issuance of shares.
“The appeal of Charlotte’s Web is clear to us: a wide portfolio of high-quality products, strong brand equity, an extensive retail presence and robust B2C e-commerce platform serving a loyal US consumer base, and a track record of in-depth scientific research,” said Kingsley Wheaton of BAT.
The investment follows BAT taking a 19.9% stake in Canadian producer Organigram back in early 2021.
Following the investment, Charlotte’s Web is said to have pro-form cash and short term investments of US$65 million.
Charlotte’s Web last traded at $0.87 on the TSX.
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As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.