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As a Big Tobacco Firm Strikes a Major Deal, Hold On to Your OrganiGram Stock

I won’t pretend that it’s been an easy, smooth ride for investors in Canadian cannabis grower OrganiGram (NASDAQ:OGI) in 2021 so far. The wild swings in OGI stock should remind us all that pot stocks are quite prone to volatility.

marijuana stocks Hand gently holding rich soil for his marijuana plants

Source: Jetacom Autofocus / Shutterstock.com

If you’re going to invest in OrganiGram’s shares, I strongly advise only buying small positions in the name and being prepared for roller-coaster price action.

That being said, there’s reason to believe that OrganiGram’s business will thrive in 2021. OGI stock may even stabilize and trend upwards.

Indeed, with a major vote of confidence and a sizable capital injection from a tobacco-market giant, it appears that the OrganiGram bulls might soon have their day in the sun.

A Closer Look at OGI Stock

In September 2020, OGI stock bulls were struggling to keep the share price above $1.

That’s a crucial level because the Nasdaq Exchange has been known to sometimes delist stocks that stay below $1 for an extended period of time.

However, any concerns about the possibility of the shares being delisted were quelled in February 2021. Amazingly, buyers bid the OrganiGram share price all the way up to a 52-week high of $6.45 on Feb. 10.

Perhaps the share-price rally was too sharp and too fast. As it turns out, OGI stock declined from its February peak, settling at $3.44 on April 1.

Stock-price pullbacks aren’t always a bad thing. Folks who’ve been waiting on the sidelines might decide to scoop up some OrganiGram shares at a pretty good price now.

Tobacco Meets Marijuana

I’ve heard commentators say that the tobacco industry isn’t doing too well and that it’s looking to invest in cannabis in order to shore up its outlook.

A recent and potentially game-changing deal provides evidence that this thesis might be true.

Reportedly, a unit of British American Tobacco (NYSE:BTI) is investing 221 million CAD in OrganiGram. At the time of the deal’s announcement, that equated to around $176.6 million

With a position of around 58.3 million OrganiGram shares, British American Tobacco will hold a whopping 19.9% stake in the cannabis cultivator.

And the partnership goes beyond British American Tobacco’s share ownership. Evidently, the two companies have also entered into a product development agreement.

Together, they’ll create a Center of Excellence to develop the next generation of cannabis products. The initial focus of these products will be cannabidiol (CBD).

“Both companies will contribute scientists, researchers, and product developers to the Center of Excellence which will be governed and supervised by a steering committee,” according to a joint statement from the two companies.

Proven Track Record

So what’s more important now: the infusion of capital or the vote of confidence in OrganiGram?

I would actually point to the vote of confidence as the headline story. Without a doubt, British American Tobacco conducted its due diligence and determined that OrganiGram is a strong cannabis-market contender.

“Organigram has a proven track record of consumer-led innovation and developing high quality adult-use recreational and medical cannabis products, which are legally available in Canada,” British American Tobacco explained.

As OrganiGram CEO Greg Engel asserts, the deal with British American Tobacco represents “a tremendous milestone in the evolution of Organigram.”

I tend to concur with Engel’s assessment. For one thing, the partnership should help strengthen OrganiGram’s ability to conduct research and development.

Furthermore, the deal could bolster OrganiGram’s ability to raise capital that it can use to invest in U.S. and international cannabis markets.

The Bottom Line

Don’t be too surprised if multiple marijuana stocks, not only OGI stock,  benefits from this development.

What does all of this mean for the owners of OrganiGram stock? There could still be more volatility ahead in the name ; make no mistake about that.

But it’s hard to feel bearish on OGI stock when a tobacco giant is taking such a large position in OrganiGram.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media, https://investorplace.com/2021/04/as-big-tobacco-firm-strikes-major-deal-hold-on-to-your-ogi-stock/.

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