British American Tobacco (BAT) moves into the cannabis market In a bid to diversify and recapture lost growth from selling traditional cigarettes. The UK giant tobacco company is making its new plans clear: Cannabis products will be an important part of its future portfolio.
Keeping up with the recent trend in the industry, BAT too is focusing on alternatives to combustible tobacco products and cigarettes. This shift has come about as a result of a continuing decline in smoking rates in developed nations, as well as increased awareness of the detrimental health effects of smoking.
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British American Tobacco (BAT) moves into the cannabis market
As cigarettes become less popular, the company is keenly exploring new markets. In addition to e-cigarettes and vaping, the tobacco giant has now set its eyes on the cannabis market. Ever since being appointed Chief Executive in early 2019, Jack Bowles, the company’s boss has been hastening the tobacco group’s moves away from selling traditional cigarettes. The new categories being explored include heated tobacco, nicotine pouches, vaping and ‘beyond nicotine’ as an additional growth wave.
With regard to the latter category, BAT spent £129 million in March to acquire a 19.9 per cent stake and become the largest shareholder in Canada-based cannabis group Organigram Holdings Inc. In addition, the company also signed a deal to research adult cannabidiol (CBD) based cannabis products.
Bowles believes that cannabis-related products will be an integral part of the company’s future portfolio and growth. The company currently has a trial underway of a CBD vape product in Manchester, UK.
What Bowles has to say
In the half-year statement, Bowles said of the FTSE 100 tobacco company, ‘As we explore beyond nicotine, we are building an eco-system of new capabilities and insights for the future.’
He added, ‘We want to leverage the expertise of our new external partners. While it is a new space for us, we're certain this is as an exciting way to create new consumer moments and facilitate longer-term growth.'
In an interview with BBC, Bowles confirmed that cannabis-related products are a vital part of the company’s future plans, stating that ‘beyond-nicotine products ‘are interesting for us as another wave of future growth.’
Collaboration with Organigram
BAT’s collaboration with Organigram will constitute the establishment of a “centre of excellence”. This will be located at Organigram’s indoor facility in New Brunswick, Canada. This facility has the necessary licenses required to conduct research and development activities with cannabis products. BAT will play its part by providing researchers, scientists, and product developers.
BAT clearly stated that as part of the collaboration, both parties will have the power to autonomously commercialise any products developed under their individual brands.
The way forward
BAT, in a bid to hasten its transformation, says it plans to bring down negative health effects linked with its products.
Discussing the future of BAT’s portfolio, Bowles clearly added that while CBD vaping is an integral part of future plans, the immediate challenge for the company is to present viable substitutes for nicotine and smoking to reduce harm.
The company’s three category brands – Vuse, Velo, and Glo are responsible for generating more than a third of the company’s total revenue in the UK. Half-yearly results in June saw BAT’s total adjusted revenue rise by 8.1% to £12.18 billion.
The company also said that 2.6 million more customers became its non-combustible product users such as Vuse e-cigarettes and vapes in the first half, bringing the total non-combustible product user base to 16.1 million. This is a record high gain in new customers.
The company reported that cigarette sales have recovered in some developing countries, following the end of coronavirus lockdown. Despite an increase in sales of cigarette brands such as Dunhill, Kent and Rothmans in overseas markets (Pakistan, Turkey and Brazil), the combustibles revenue has fallen 3 per cent to £10.5 billion. This includes revenue from heated tobacco and cigarettes products.