With the shares 50% below their all-time high of 2017 and having moved sideways at best over the past three years, the 7% dividend yield indicates the company might make better use of its cash than just paying it out to investors.
In its first-half results statement, the FTSE 100 cigarette maker said it is establishing a ‘Centre of Excellence’ to focus on developing the next generation of cannabis products, with an initial focus on cannabidiol (CBD).
BAT, which spent GBP129mln in March to become the largest shareholder in Canadian cannabis group Organigram Holdings Inc, also has a trial underway of a CBD vape product in Manchester.
Since being appointed in early 2019, chief executive Jack Bowles has been looking to accelerate the tobacco group’s moves away from cigarettes, with new categories including vaping, heated-tobacco, nicotine pouches and “beyond nicotine”.
In this latter category, BAT’s corporate venturing unit, Btomorrow Ventures or BTV, made five other investment as well as the Organigram investment and collaboration agreement focused on research and product development.
“As we explore beyond nicotine, we are building an eco-system of new capabilities and insights for the future,” said Bowles in the half-year statement.
“We are leveraging the expertise of our external partners and while it is early days in this space, we see this as an exciting way to recapture lost consumer moments and drive longer term growth.”
He also told the BBC the beyond-nicotine products “are interesting for us as another wave of future growth”, confirming cannabis-related products are seen as part of the group’s future growth plans.
The collaboration with Organigram will include the establishment of a ‘centre of excellence’ located at Organigram’s indoor facility in New Brunswick, Canada, which holds licenses required to conduct R&D activities with cannabis products, with BAT contributing scientists, researchers, and product developers.
BAT said as part of the collaboration, both parties will have the ability to independently commercialise any products developed under their own brands.
It was noted that Organigram has since acquired a specialist manufacturer of cannabis-infused ‘chews’ and other edibles, which could indicate one of the options for the group’s first range of CBD products to come to market.
With recreational cannabis illegal in more than two-thirds of the states of the USA, almost all European markets and jurisdictions around the world, for one of the world’s biggest tobacco companies to be making public its drive into this market, some investors may be wondering if the company knows something about legalisation that we don’t.
While the medical arguments roll on, it would certainly make sense from a tax collection point of view, if nothing else.