1 of 2
Deepak Anand, ASDA Consultancy Services.
2 of 2
Pieter Vorster, Idwala Research.
For tobacco companies, diversification beyond nicotine can be challenging.
In their journey of transforming their businesses away from combustible cigarettes toward reduced-risk alternatives and thus securing long-term survival, the leading tobacco companies have invested billions of dollars in research and development of novel nicotine products. The realm of expertise in adjacent areas they obtained in return has become the source of industry moves toward diversification beyond nicotine. Until now, pharmaceuticals, cannabis, and wellness have been the focus of tobacco players’ investment strategies, and hardly a month passes without news of cigarette makers buying stakes in inhalation and oral delivery systems providers or manufacturers of cannabidiol (CBD) products.
With the global legalization of cannabis being propelled by its increasing medical benefits and the popularity of CBD products rising, making greater inroads into the cannabis sector appears to be a logical step for tobacco firms. According to market research company Straits Research, the global cannabis market was valued at US$41.95 billion in 2024 and is projected to reach US$52.01 billion this year. By 2033, it is forecast to stand at US$290.73 billion.
“Tobacco companies’ partnerships with cannabis companies seem to be going quite well,” confirms Deepak Anand, principal of Vancouver-based ASDA Consultancy Services. “I think the general strategy for all tobacco companies is really playing the long game. It’s more about learning about the industry, about what it takes to launch a product, and probably most importantly, applying the lessons that tobacco has learned, which is keeping product safety front and center.”
Organigram leads the pack
Among leading tobacco companies, British American Tobacco (BAT) has made the most investments in cannabis-related companies, with partial stakes in at least 13 cannabis startups. Organigram Holdings, a Canadian company specializing in the production and sale of cannabis and cannabis-derived products, and with US$175 million British American Tobacco’s (BAT) first major and to date largest investment in the cannabis sector, has been particularly active in its quest to enlarge its domestic, but first and foremost its international, footprint. The company has made several strategic acquisitions in the past twelve months.
As part of its transaction with Organigram, BAT, which holds 30% in Organigram, established the Jupiter Fund, a strategic investment pool for acquisitions outside Canada, in collaboration with the Canadian cannabis company. The majority of BAT’s follow-on equity investment of CA$124.56 million (US$87.38 million) in Organigram was allocated to create the fund, the primary objective of which is to accelerate the Canadian firm’s international growth by targeting investments in emerging cannabis opportunities, both overseas and in the US.
Notable investments through the Jupiter Fund include Organigram’s US$2 million investment in Open Book Extracts, a North Carolina-based cannabinoid ingredient producer and product manufacturer, in March 2024, which expanded Organigram’s footprint in the US market, and its acquisition of a minority stake for CA$21 million in German cannabis company Sanity Group in June 2024. The latter move represented Organigram’s first significant strategic investment in an international market. By March 2025, Organigram had completed the third and final tranche of BAT’s investment, bringing the total funds available in the Jupiter Fund to approximately CA$57.8 million, after accounting for prior investments.
Back home, another takeover in December 2024 made Organigram the largest cannabis company by market share: the cannabis firm acquired Motif Labs, a Canadian leader in the vape and infused pre-roll categories, for CA$90 million. The move gave Organigram a combined market share of 12.4% across all major cannabis categories.
On April 1, 2025, the next coup followed. For CA$24 million, Organigram took over Collective Project Limited, a Canadian manufacturer of cannabis and hemp-derived THC beverages. The company markets its drinks in Canada and in ten US states. “This allows Organigram and in many ways BAT to enter the thriving cannabis and hemp-infused beverage market in the US,” comments Anand. “It is a pretty significant development by a tobacco company indirectly into that market.”
The alternative adult beverage market in the US is growing, with many new products and brands entering the market. The CBD beverage market in the US was valued at US$4.4 billion in 2022, according to market research firm market.us, and is expected to grow to US$34.4 billion by 2032.
“The acquisition of Motif Labs and Collective Project Limited show that BAT and Organigram are moving forward with their plans in a positive way and putting their money to good use,” Anand says. “Organigram is in the pole position now in Canada and also positioned well in the US.”
Regulatory uncertainties prevail
Other tobacco companies’ cannabis investments are struggling with profitability and market positioning. Altria’s US$1.8 billion investment in Cronos Group, which has long been trying to find a footing in the Canadian recreational cannabis market, had a strong financial performance in 2024, with net revenue increasing by 35% year-over-year to US$117.6 million. The company’s Spinach brand ended the year as the number one cannabis brand in Canada. Nevertheless, Cronos has faced challenges in maintaining profitability and has struggled to fully establish itself in the market.
Imperial Brands’ Oxford Cannabinoid Technologies was confronted with financial challenges in 2024. As of May 2024, the company had a market capitalization of US$2.11 million, with its stock trading at US$0.04. In June, the company was voluntarily delisted from the London Stock Exchange. Rebranded as Octavian Therapeutics in February 2025, the company is now advancing its lead candidate, a cannabinoid receptor type 2 agonist for conditions like peripheral neuropathy and is actively seeking funding to support further development.
Imperial Brands’ other cannabis investment, Canadian Auxly Cannabis Group, made its way out of the red last year. The company, in which Imperial holds a 19.8% equity stake following the conversion of over US$123 million in debt into shares in April 2024, achieved record net revenue of US$122.3 million for 2024, marking a 21% increase from the previous year, and improved its gross margin on finished cannabis inventory sold to 46% from 34% in 2023.
Despite the promising outlook for the global cannabis market, the industry continues to face regulatory uncertainties, such as the meanwhile administratively paused US DEA rescheduling decision, which sought to reclassify cannabis from Schedule I (substances which have no currently accepted medical use and a high potential for abuse) to Schedule III (substances with a moderate to low potential for physical and psychological dependence) in the world’s largest market for cannabis, a move that would acknowledge the substance’s medical use and ease tax burdens on legal cannabis businesses. Analysts predict that further large additional investments by tobacco companies in the cannabis space will be held off until they can invest in US markets following federal reforms.
A different strategy
Unlike its competitors, Philip Morris International (PMI) to date has exclusively concentrated on medical rather than recreational cannabis investments, with an initial area of focus in its beyond nicotine initiatives being respiratory delivery. As early as 2016, the company invested in Syqe Medical, an Israeli company specializing in developing inhalers for precise dosing of medical cannabis, aiming to reduce pain while controlling psychoactive side effects. PMI contributed US$20 million to support the development of Syqe’s innovative medical cannabis inhaler and later acquired the company through its subsidiary, Vectura, in July 2023. However, the acquisition was structured to depend on milestones, including FDA approval for Syqe’s inhaler, which it had not received as of April 2025, but which is a key condition for PMI’s full acquisition of Syqe for up to US$650 million.
In January 2025, PMI announced a partnership with Avicanna, a Canadian biopharmaceutical firm specializing in cannabinoid-based medicine, through its subsidiary Vectura Fertin Pharma. The collaboration aims to advance medical cannabis research and improve accessibility in Canada.
That entering the cannabis sphere in their quest to turn away from combustible cigarettes is likely less of a minefield for tobacco companies than moving into the pharmaceutical sector is an experience PMI had to make twice. In line with its strategy to transform itself into a “broader healthcare and wellness company,” PMI had set itself an ambitious goal: By 2025, it aimed to raise US$1 billion in net revenues from its beyond nicotine division. It bolstered its approach with a series of acquisitions in the healthcare sector in 2021, among them Denmark-based oral drug delivery specialist Fertin Pharma for US$820 million and US respiratory drug company Oti Topic for an undisclosed sum.
The biggest deal, however, was PMI’s takeover of UK asthma inhaler manufacturer Vectura Group for US$1.2 billion. It was met with immediate backlash: Respiratory experts and health organizations objected strongly to the move, calling the fact that a tobacco company would profit from the illnesses their products cause an unsolvable ethical conflict. Vectura was boycotted and excluded from key medical conferences. In September 2024, PMI sold Vectura at a considerable loss – the company was acquired by Molex Asia Holdings Ltd. for £150 million (US$191.73 million), with potential deferred payments of up to £148 million. According to analysts, PMI had taken a US$680 million impairment against the unit.
A question of credibility
Previously, PMI had had to learn with its Medicago investment that there are limits for tobacco companies when seeking to make inroads into the medical sector. Medicago, a Canadian biotech company, had developed a plant-based Covid vaccine in 2020 that was approved by Health Canada but not authorized by the World Health Organization (WHO) due to PMI’s stake in Medicago, a move that limited the vaccine’s global distribution. In December 2022, PMI withdrew its investment from Medicago.
Following news reports, PMI has meanwhile abandoned its plans to generate US$1 billion from beyond nicotine products. Vectura Fertin Pharma, PMI’s subsidiary for the development and sale of products and brands for wellness and health-care formed after the series of healthcare acquisitions in 2021, was rebranded as Aspeya, Inc. in March 2025 to “reflect the company’s focus on consumer health, cannabinoids, inhaled therapeutics, and nicotine replacement therapy,” according to its website.
It should be noted that other tobacco companies have ventured into pharma as well: through its subsidiary KBio Holdings, BAT is developing plant-based treatments and vaccines targeting rare diseases. Japan Tobacco Group, JTI’s holding company, which also owns food businesses, has had a pharmaceutical division since 1986, which focuses on the development, manufacturing, and sale of prescription drugs. Both economic activities run under the radar of the media or public health activists.
Pieter Vorster, managing director at Idwala Research, explains the differentiated perception with companies’ history and how the industry used to apply its excess cash flow. “Until the late 90’s, tobacco companies generally operated as conglomerates. BAT, which was previously called BAT Industries, included Zurich Financial Service, for instance. Philip Morris Companies (now Altria), used to own PM USA, PMI, Kraft Foods and Miller Brewing, among others. RJ Reynolds also owned Nabisco. In a post-conglomerate and post 1994 US congressional hearing era, a standalone tobacco company buying into pharma as a di-versification strategy will likely be problematic, also because of Bloomberg’s significant influence in the WHO.”
“Besides,” Vorster adds, “BAT’s pharma business is different from JT’s and from PMI’s failed attempts in the sense that, they are developing products from (tobacco plants), e.g. the Covid vaccine that made the news.”
Tobacco companies are still facing historical issues that are hard to overcome, he adds. “It needs time. Before they can seriously get involved in pharmaceutical companies, they need to be trusted on the tobacco harm reduction side. Their science must be trusted – they must get over that hurdle first.”