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Organigram Holdings Inc. (NASDAQ:OGI) (TSX:OGI) announced on Tuesday a strategic investment aimed at expanding its presence within the burgeoning European cannabis market.
The Toronto-based company will utilize proceeds from its Jupiter strategic investment pool and invest €14 million ($15 million) initially. The sum includes €11.5 million via an unsecured convertible note and €2.5 million to purchase equity interests from existing Sanity Group founders and shareholders providing Organigram with a minority stake in Berlin-based cannabis company Sanity Group GmbH.
Additionally, the company said it will advance another €3 million as a second tranche of the unsecured convertible note for future opportunities to be pursued by Sanity subject to the satisfaction of certain conditions.
Concurrent with the investment, Organigram and Sanity Group have entered into a new supply agreement to include significantly higher volumes and the intention to work together on the commercialization of Organigram's brands and intellectual property in Germany.
Sanity holds roughly 10% share of the German medical cannabis market, maintaining a distribution network with over 2,000 pharmacies working with approximately 5,000 physicians in Germany. As of April 1, adults over 18 in Germany can legally possess up to 25 grams of dried cannabis and cultivate up to three marijuana plants at home. Beginning July 1, adults can also join not-for-profit social clubs where they can buy up to 25 grams of cannabis, with a cap of 50 grams per month. That cap is 30 grams for members under 21 years old.
Moreover, Sanity is also participating in a Swiss recreational cannabis pilot program in Basel, with one store operational and a plan to expand its retail footprint in Switzerland. In 2023, the Swiss Federal Office of Public Health (BAG) granted approval to the Swiss Institute for Addiction and Health Research (ISGF) and the Sanity Group to initiate a pilot study on the controlled dispensing of recreational cannabis in the canton of Basel-Landschaft.
"A meaningful presence in Germany and Europe is essential to achieving our ambitions to be a global cannabis leader," Paolo De Luca, chief strategy officer of Organigram, said. "We believe that after Canada, Germany will emerge as one of the more promising markets under a nationally legal model."
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See also: Organigram And This Canadian Cannabis Brand Expand In Europe And Beyond
"Our investment in Sanity Group establishes a significant European footprint for us. Organigram benefits from Sanity's expertise and insights in the German (and in the future) other European cannabis markets," Beena Goldenberg, CEO of Organigram, said. "This has the potential to provide a pathway for us to launch our brands and industry-leading IP through Sanity's extensive distribution network. This relationship also bolsters our European revenue generation through a significantly expanded commercial agreement."
Until Organigram receives EU-GMP certification at its Moncton production facility, Sanity Group has committed to purchasing significantly higher annual volumes of dried flower under the new agreement as compared to the previous one.
Once Organigram receives EU-GMP certification in Moncton, Sanity Group will shift its annual purchase commitment from Organigram to a percentage of its overall assortment of flower offerings for the European market. Organigram expects to complete its final EU-GMP audit before the end of the calendar year.
Organigram's shares traded 0.95% higher at $1.59 per share during the pre-market session on Tuesday morning.
