Is Big Tobacco Pivoting to Big Cannabis?

British American Tobacco announced Monday that it has acquired a non-controlling minority stake in the Berlin-based marijuana startup Sanity Group GmbH.

Kingsley Wheaton, the chief growth officer at BAT, characterized the deal as an example of the company’s “ongoing work to explore numerous areas beyond nicotine, positioning BAT for future portfolio growth across a range of categories and geographies.”

“We continue to transform our business, through better understanding of our current and future consumers, as part of our A Better Tomorrow purpose,” Wheaton said in a press release. 

The acquisition could also be seen as a reflection of an emerging trend: cannabis is the future, while tobacco––specifically cigarettes––is increasingly a relic of the past.

A survey from Gallup last month found that a mere 11% of Americans reported as cigarette smokers, an all-time low. By contrast, 16% said they consider themselves current cannabis smokers.

Those consumer trends may continue to shift as marijuana becomes legal in more markets both in the United States and beyond.

In Germany, government officials are readying plans to legalize recreational cannabis, a move that will make the country the world’s largest legal marijuana market.

That coming change in policy almost certainly made Monday’s deal even more enticing for British American Tobacco, one of the largest tobacco companies in the world.

According to Bloomberg, Sanity “secured $37.6 million in the BAT-led Series B funding round,” noting that almost “half of the amount will go toward strengthening Sanity’s medical business, while the company will spend the rest on preparing for the potential legalization of recreational marijuana in Germany.”

Per Bloomberg, British American Tobacco made the investment along with Verde Capital, the investment fund co-founded by Snoop Dogg.

Sanity Group was founded in 2018 and now has more than 100 employees and has raised tens of millions from the likes of “Navy Capital, Redalpine, HV Capital, Calyx, Cherry Ventures, Bitburger Ventures, SOJE Capital, and various business angels and celebrities such as Will.i.am (Black Eyed Peas), Scooter Braun, Hollywood actor Alyssa Milano and German soccer player Mario Götze,” along with Verde Capital and now BAT.

The company says that its focus “is on pharmaceuticals (medical cannabis; finished pharmaceuticals) and medical products on the one hand, and cannabinoid-based consumer goods on the other.”

Finn Age Hänsel, the founder and chief executive officer of Sanity Group, hailed the funding from British American Tobacco as “an important milestone for us and a strong signal towards the future of cannabis in Germany and Europe.”

“I am grateful for the belief shown by both new and existing investors. Our goal is to leverage the full potential of the cannabis plant and to explore and harness the different cannabinoids – with the new capital, we will be able to accelerate our medical and consumer business units whilst preparing accordingly for cannabis legalization in Germany,” Hänsel said in a statement, as quoted by Tech Funding News.

According to Max Narr, the chief investment officer for Sanity Group, the “financing round is not only the largest funding round achieved by a European cannabis company to date, but also one of the few upsizing rounds in this current economic phase of the German startup scene.”

Hänsel told Bloomberg that Sanity has attracted “strong interest, not only from tobacco, but also from other industries like fast-moving consumer companies.”

He also said that the German government is “working actively on [the new marijuana law] and really want to come to a good draft of the law by the end of this year.”

“This is really a priority topic for the government,” he said.