Good morning. My name is Tabitha, and I'll be your operator today. At this time, I would like to welcome everyone to the Organigram Holdings Inc's Product Development Collaboration and Strategic Investment Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. We ask that you please limit yourself to one question and one follow-up question. You may requeue if you have any further questions. As a reminder, this conference call is being recorded, and a replay will be available on Organigram's website. This time, I would like to introduce Amy Schwalm, VP , Investor Relations. Please go ahead.
Thanks, Tabitha. Organigram and BAT both issued press releases this morning. The OGI press release, along with the slide deck, are available on the Investor Relations section of our website. Joining me on the call are Organigram's CEO , Greg Engel, and our Chief Strategy Officer, Paolo De Luca. First, Slide two, I'd like to remind you that our discussion during the call today will include forward-looking statements that are based on assumptions subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Management can give no assurance that any forward-looking statement will prove to be correct. We refer you to the cautionary statement on risk factors included in our disclosures, including today's press release. I will now hand the call over to Greg.
Thanks, Amy, and good morning, everyone. We're thrilled to announce this collaboration with BAT, which validates the strength of our cannabis platform, in which we expect to significantly accelerate and strengthen our research and product development activities and ultimately bring some of the most innovative and differentiated products to market. Starting on slide three with a brief snapshot of Organigram for those participants on the call that are less familiar with us. We're a leading Canadian licensed producer of high-quality cannabis from our state-of-the-art indoor facility in Moncton, New Brunswick. We sell to all 10 Canadian provinces and serve the Australian and Israeli medical cannabis markets via export under their medical systems and are looking to expand our international footprint.
Our company's been focused on automation, technology, and innovation, and this collaboration with BAT takes our commitment to a new level. Turning to Slide four, we'll highlight some of our more recent accomplishments. We have a comprehensive portfolio of products and brands and are in the midst of revitalizing our offerings and with some good success. For example, our newer SHRED v alue brand has been the number one most searched brand for the last four months on the Ontario Cannabis Store website, Canada's largest sales channel. We grew gross adult rec revenue 42% year-on-year and 14% sequentially in Q1 fiscal 2021, our most recent reported quarter. We also generated positive cash flow from operations in Q1 fiscal 2021, the Q2 of the last three with positive operating cash flow.
We are currently ramping staffing and production capacity to capture more sales opportunities and economies of scale as the market continues to grow, with new retail stores opening across Canada. Turning to Slide five, I briefly want to touch on some key examples of our commitment to innovation and R&D before getting into discussions about today's announcement. Organigram's internal R&D team developed a proprietary nano-emulsification technology, which resulted in the commercialization and launch of our Edison RE:MIX dissolvable powdered beverage. This technology offers improved absorption compared to traditional edibles and beverages. Another reflection of our dedication to innovation and the development of future cannabis products is our investment in biosynthesis. We are one of only two cannabis producers invested in biosynthesis through our investment in Hyasynth, a biotech company in Montreal and leader in cannabinoid science.
Hyasynth has submitted patent applications on the production of minor rare cannabinoids, which traditional cultivation can be too cost prohibitive. It could exist in very low levels in the plants. Minor cannabinoids are believed to be the next frontier of cannabis research and novel cannabis product development. So moving to Slide six and onto our announcement for today. So there are two principal elements to our announcement: the strategic investment of approximately CAD 221 million, or $175 million, by a subsidiary of BAT for 19.9% equity interest in OGI. T wo, a product development collaboration agreement, or PDC agreement, which includes the formation of a Center of Excellence to develop the next generation of cannabis products, IP, and technologies.
The strategic rationale for the transaction is threefold: It accelerates and strengthens our research and product development activities, raises significant capital for growth opportunities, and gives us access to BAT's expertise. Let me discuss each merit in a little more detail. First, in terms of strengthening our R&D activities, the Center of Excellence means we will closely collaborate with BAT, the leading global consumer business, on the development of innovative and differentiated cannabis products, IP, and technologies. The significant injection of capital from them also enables us to further invest in our own R&D and product development activities. Second, the transaction provides us with significant capital to invest in growth opportunities, including entering the United States and other International markets at the right time and in accordance with applicable laws.
Upon closing, we will have pro forma cash and short-term investments of approximately CAD 296 million or $235 million US. About CAD 30 million or $24 million of this amount will be reserved for OGI's obligations under the PDC agreement, and the balance can be invested in growth, including advancing our international strategy. We will be granted a worldwide, royalty-free, sub-licensable, perpetual license to exploit IP developed under the PDC in any field. This license, which is a non-exclusive outside of Canada and sole in Canada, will also enhance our ability to enter International markets, including through sub-licensing arrangements with established operators. Third, the transaction allows us to leverage BAT's expertise for our wider operations through the Center of Excellence and BAT's representation on our Board of Directors.
We will have direct access to BAT's expertise through the Center of Excellence, including scientists, researchers, and product developers, as well as the members of the steering committee, which will oversee the Center of Excellence. BAT is also entitled to add two board members to our Board of Directors. Today, we announced the addition of one BAT nominee, Mr. Jochen Hepper, and another nominee is expected to be added in the near term. Mr. Hepper, who is a group co-category director at BAT, has over 23 years of diverse management, strategic leadership, M&A experience at global companies, including BAT, Procter & Gamble, Danone, and LifeStyles Healthcare. His expertise includes growing value and volume share through global brand and equity building and consumer marketing. Both BAT nominees are expected to contribute deep, deep expertise and further complement our board's capabilities, as well as extend our international presence.
Further particulars regarding BAT's second nominee and their credentials will be provided upon appointment. Moving on to Slide seven. We're tremendously excited to bring the exceptional capabilities and resources of BAT together with our strengths and expertise. We believe that this collaboration will be transformative for OGI shareholders, not only because of our complementary capabilities and dedication to R&D, but also because of the alignment and mutual commitment we have to responsible stewardship, consumer safety, and the highest regulatory and ethical standards. Moving to slide eight. Slide eight highlights some of the key elements of the Center of Excellence, or CoE. It will be located at our Moncton facility, where we hold all the requisite licenses to do R&D. The CoE will be focused on developing the next generation of cannabis products with an initial focus on CBD.
Both companies will contribute scientists, researchers, and product developers, and the CoE will be governed and supervised by a steering committee consisting of an equal number of senior members from each company. Both parties will have access to certain of each other's IP and, subject to certain limitations, have the right to independently globally commercialize the products, technologies, and IP created by the CoE under the PDC agreement. Moving on to Slide nine, which summarizes the key transaction details, many of which I've covered already. A subsidiary of BAT has subscribed for 58.3 million common shares of OGI, which represents a 19.9% equity interest on a non-diluted basis at a price per share of CAD 3.79. The price per share is based on a five-day VWAP price on the TSX ending March 9th, 2021.
This results in total proceeds to OGI of approximately CAD 221 million, or $175 million. A s I mentioned earlier, about CAD 30 million or $24 million of the total will be reserved to satisfy obligations under the PDC agreement. The balance of the proceeds can be used at our discretion, subject to certain restrictions. Costs relating to the Center of Excellence will be funded equally by both parties. CoE will focus on the development of cannabis vapor products, cannabis oil products, and any other products, IP, and technologies the parties mutually agree upon. BAT is entitled to appoint 20% of OGI's Board for so long as BAT holds at least 15% of OGI's common shares.
BAT will be entitled to customary preemptive rights as well as top-up rights for equity issuances, customary piggyback registration rights, and BAT is also subject to certain share transfer restrictions. Lastly, Slide 10 shows the pro forma capitalization and ownership for cash and short-term investments of CAD 296 million, or $235 million , as a result of this transaction. Moving to Slide 11. In closing, I want to thank you for joining us today. It's our view that the cannabis industry is still in the nascent stages of product development, and a commitment to R&D is critical to establish a long-term competitive advantage.
We truly believe our collaboration with BAT has the potential to be game changing for OGI, including for our employers, partners... Sorry, employees, partners, customers, patients, shareholders, all of our key stakeholders. That concludes our formal remarks. Paolo and I would now be happy to answer your questions.
At this time, if you'd like to ask a question, simply press star one on your telephone keypad. Your first question comes from the line of David Kideckel with ATB Capital Markets.
Thank you. Good morning. Congratulations on this deal, the Organigram team, and thanks for taking my question here. My first one relates to, I think, Greg, in your prepared remarks and in the press release itself, through your partnerships here with BAT, you're gonna be targeting vapor and oral products, predominantly CBD, I believe. So my question is, given your other groundbreaking partnership with Hyasynth Biologicals, that you also mentioned in your prepared remarks, do you see any opportunities for this deal now with BAT to coincide with Hyasynth, for that additional product offerings and also the other minor cannabinoids?
Thanks. Yeah, it's a great question, David, and thanks for asking. Yeah, again, the initial focus of the PDC and the CoE will be on oral and vapor products, and again, initially on CBD, but also moving towards THC going forward. I think, you know, again, we use the general commentary about CBD and THC, but, I mean, again, minor cannabinoids do play a key point. I think when we look at and part of our investment thesis on Hyasynth has always been that, you know, yes, they've already shown an ability to produce and be the first company that we're aware of to sell commercial major cannabinoid, but minor cannabinoids is going to be key.
I think when you look to develop truly innovative, unique products going forward, having an ability to add or make very specific minor cannabinoid, cannabinoid-based products, you know, is a huge and tremendous opportunity if those can be produced through biosynthesis because they're at such low levels in the plant. So it does lend itself, and I think again, there is a tremendous potential to kind of integrate the work between the two and, you know, bring those new innovative products to market. So it's a great question, and yeah, that was part of the consideration here.
Great, thanks. And, just as a follow-up, just wondering, what is your priority with that? You know, the opportunities here include, in your prepared remarks, Canada, the U.S., and International. Do you have any market in particular, and is there a timeline for when you expect any given product to hit the shelves? Thanks.
Yeah, it's a great question. So certainly we, you know, we don't have timelines specifically. I think we're, you know, we're just in those kickoff stages. We have developed a very specific plan as to what products we'll be working on and when over the three years, over the next three years, and, you know, have some thoughts on kind of timing to market, but we, you know, neither ourselves or BAT's in a position to kind of publicly disclose what that is.
I think when you look at, you know, the near term opportunity for us, the immediate opportunity is certainly Canada, but certainly we are going to spend a significant amount of time looking at the U.S., looking at International markets, and how do we leverage, either our existing IP portfolio or, you know, new products that are jointly developed and, and new forms that are jointly developed and bring those into other markets. A gain, that's why I think, you know, we've made the commentary about CBD as a focus, because there's a larger currently addressable market on CBD globally. So I think that's an important distinction as to why the initial focus is CBD, but we will be moving, you know, into other areas, including THC, going forward.
Thanks for taking my questions. I'm going to hop back in the queue. Congrats.
Thanks.
Your next question comes on the line of Andrew Partheniou with Stifel GMP.
Hi, congrats on this, on this announcement, and, and thanks again for, for taking my questions. Maybe just, a little bit more high level, could you, could you give a little bit more color on, you know, how the talks progressed, you know, how they started? And, you know, given the significant amount of time between now and, you know, when legalization happened, you know, BAT has, you know, probably, you know, the pick of the litter in terms of who to partner with. You know, could you give a little bit more color on, you know, why they chose Organigram in particular?
Yeah, I mean, maybe I'll answer the second part of your question first, Andrew. I think, you know, based on the feedback we've heard from BAT, that, you know, they've been very impressed, you know, with our... You know, we have a state-of-the-art facility. I mentioned it earlier, we're, you know, committed to R&D and innovation and product development, so, there's definitely a cultural fit, that aligns between the two companies in terms of how we see cannabinoid science and cannabinoid products developing and going forward. You know, certainly, again, they've made comments about the strength of our management team, our commitment to compliance, and through the process, you know, we've developed a very strong relationship with the BAT team.
You know, we believe, as I said earlier, there's a very strong cultural fit and alignment to make this collaboration successful. You know, I think any time you look at collaboratively working with someone, that's one of the most critical things, because, again, in the center of excellence, we will be having seconded employees, you know, from the U.K. and U.S., from BAT, working at our Organigram facility. We'll be contributing employees, but we'll also be hiring new people to fill out the team. You know, having that mix of kind of innovation and science and research culture is important. I can't necessarily speak to kind of the timing of kind of this process. The only thing I would say is, you know, as you can imagine, it's been extensive due diligence.
It has been more challenging to do with COVID, certainly, but certainly, you know, we've been able to do things virtually, including virtual tours, and you know, the teams have worked incredibly well, and you know, I think it's been a great process, and I think, you know, the cultural fit for me and for us and our board, and again, we've heard those comments from the team at BAT, is one of the most critical aspects of this collaboration.
Thanks for that additional color. You know, maybe switching gears, talking a little bit about IP and, you know, how, you know, bringing all of this to market, could you give a little bit of color on, you know, how yourself and BAT, you know, to the extent possible that you could talk about it, obviously, are gonna, you know. The results of your R&D collaboration agreement, you know, how do you expect that to be launched in tandem with that or independently or, you know, any other color that you could provide in terms of the future prospects of the results of this R&D?
Yeah, no, it's a great question, Andrew. I think where, you know, again, the key here is, you know, both companies are contributing background IP into the collaboration, and then from that, we'll be developing, you know, foreground IP that both companies will have access to. And, you know, I think for each company, I mean, you know, we, we- I can't speak to kind of their commercialized- commercialization plans and timing. But for us, as I said earlier, for us, you know, the nearest term opportunity and to bring products to market is certainly Canada.
But you know, part of this strategic investment allows us to build up sufficient capital to look to expand either directly or through partnerships into other markets like the U.S. or International with those new product forms or with the existing IP that we have. And I think, you know, again, that is also under the guise that you have to ensure that you're compliant from a regulatory perspective, and the products meet the local jurisdiction. But that's our focus, and I think, you know, this. We've been talking about this you know concept for many months, where our focus has always been and continues to be, you know, develop new products, innovative products that are transferable to other jurisdictions.
Now this, you know, this collaboration with BAT accelerates that, brings a deeper bench, you know, bench strength in terms of knowledge and IP, and will allow us to really bring those innovative new forms to global markets.
Thanks for that additional color, and congrats again.
Thanks, Andrew.
Your next question comes from the line of Adam Buckham with Scotiabank.
Good morning, and congratulations on the deal.
Good morning.
Now, my first question is a bit of a follow-up to the last one. I think the PR indicates that BAT will own all IP generated from the Center of Excellence and will grant OGI use of the IP. Can you help us understand how the granting process works for IP generated through the partnership?
Yeah, I mean, it, it's a pretty simple, straightforward answer. So, you know, for ease of administration, both parties agreed that BAT would own any rising IP and then grant us, licenses to utilize it. You know, this was based on the fact that they have in-house expertise and existing infrastructure in place to manage IP rights worldwide, and it's really a core competency for their organization. But, you know, when we say grant, you know, this is, as IP is submitted, I mean, this agreement is, you know, perpetual, royalty-free, ongoing. So, you know, those will be issued at the time the IP is filed. But there's no, you know, no specific process, of kind of that granting. It's, it's defined in the agreement that we will have, global rights in conjunction with them.
It's just that they're going to manage and register and oversee the IP process, and so both parties will have equal rights from a marketing, you know, commercialization perspective.
Okay, that's great color. Thanks. And then secondly, I just wanted to focus maybe on the impact of costs will have on OGI from the Center of Excellence, because I believe you guys are matching pretty much 50% of the R&D expenses, right? When would you expect these to start impacting? And then, any color you can provide from a modeling standpoint would be helpful.
Yeah. So we have noted in the release that, you know, approximately CAD 30 million of the CAD 221 million Canadian that's been invested, you know, roughly has been allocated to that. So a portion, you know, again, a portion of the proceeds will, you know, will be allocated to that. So, so again, that's, you know, really that timing, we expect initial costing to start within 60 days. You know, again, we've identified internal parties on both sides that we're looking to second to it. We've already started work on some of the, you know, additional equipment, and construction changes within our facility to, you know, to expand some of their R&D activities. I think you'll start to see, you know, start to see that happening over the near term.
Okay, great. Thanks, and congrats again.
Thanks.
Our next question comes from the line of Aaron Grey with Alliance Global .
Hi, good morning, and I'd like to echo my congratulations on the partnership. So first question, you know, for me, you know, just like to double back in terms of kind of the potential commercialization, you know, with the IP, just like, you know, looking at specific markets, like, say, U.S., for instance. Obviously, BAT has, you know, pretty broad distribution. So could you help us kind of, you know, conceptualize, you know, how something might, you know, come to term for you guys, come up with some IP, you know, from some product for CBD, for example, which is, you know, more broadly distributable today? And, you know, how that could go to market, since it would technically be, like, independent.
Would there be, you know, two different brands between, like, a BAT and Organigram, and then you would each leverage your own distribution and you guys having to find your own through the U.S., or could there be further partnership? Just any kind of help, in terms of kind of conceptualize, that would be helpful. Thank you.
Yeah, it, it's a great question, Aaron, and I think where, you know, when we look at commercialization activities, I mean, none of that's been determined, you know, as you know, as of yet. I mean, it's still the focus right now is on the R&D process. But when we look at potential ways, I mean. Certainly when we look at a market like the U.S., you know, we could enter the market through our directly ourselves. We could find a contract manufacturer for produce for us in the market and still kind of manage ourselves, or potentially we could look for a partner. Both parties are restricted in some ways with what type of partners and who you could partnership with, too, in terms of what that could look like.
You know, but certainly, there are opportunities for accessing the markets with some restrictions in kind of those three different ways. So I think, again, I can't comment on BAT's plans, but I think certainly, you know, that's how we look at the market. And there may be opportunities where we could jointly decide that, you know, only one party commercializes, and, you know, that could be contemplated as well. But certainly, again, we're, you know, we're not at the stage that we're looking at how to commercialize. We're really focused on, you know, we're really focused on how do we develop the products and what products we're focused on today.
Okay, great. Thanks. That's super helpful. And then one follow-up. You know, you mentioned the initial focus on products, you know, being vapor and oral, but you also mentioned kind of the, you know, combined expertise in terms of the plant expertise that BAT has. So are you also looking to potentially kind of leverage any, like, plant expertise in terms of your own kind of cultivation and growing that they might have to leverage as well? Or just kind of, like, how deep do you plan to use this, you know, beyond just the R&D to help with kind of your overall and ultimate business as you guys continue to, you know, work to improve your own yields? Thank you.
Yeah. Yeah, it's a great question. We, you know, so certainly the core focus of the Center of Excellence is gonna be on oral and vapor products or other products that we determine jointly to kind of work on. But I think, again, understanding they have deep plant genetic expertise and, you know, we, we have had meetings with that group, and I think there's opportunities to provide, you know, some assistance to our team, and, and cross-functionally, helping their team understand cannabis plants, and kind of how cannabis and hemp grow and produce based on our experience. So I think, you know, again, that, that there's an opportunity to do that, and I think certainly one that we'd like to be able to take advantage of, and those teams have had initial discussions.
Okay, great. Thanks.
Your next question comes from the line of Vivien Azer with Cowen.
Hi. Thank you. Good morning. So BAT a couple months ago launched a pilot with a CBD vape in the U.K. So I'm just curious where that fits into this new agreement? That's my first question. Thanks.
Yeah. Hey, Vivien. So yeah, they, they've launched under their Vuse platform CBD product in Manchester, in the U.K., in a limited market. I think really for them what we understand you know from what we've seen is that it's you know it's a, it's a test market for them, and really that's how they're treating it. You know, I think when we look at the overall product development side, certainly that will inform the PDC in terms of some of the experiences that they're seeing with that consumer product in a small select area of the U.K. But I think you know that's at this point is what we're looking to from that, at least from a you know CoE perspective, is to garner consumer feedback from that work.
Got it. And a quick follow-up. You mentioned, you know, some shared IP, and you mentioned vapor specifically, but does heat-not-burn fall into that IP sharing agreement as well? Thanks.
We're not disclosing full details in terms of, like, which specific IP. I mean, as you know, BAT's got a very deep and broad portfolio of IP that they're contributing to it, and, you know, I guess all I'd say is vapor and oral products are the focus, so.
Okay, fair enough. Thank you.
My next question comes on the line of Graeme Kreindler with Eight Capital.
Hi, good morning. Thank you for taking my questions, and congratulations. I wanted to follow up with respect to the Center of Excellence, and the CAD 30 million budget allocated to that. How is that gonna tie in with Organigram's Phase 5? Just curious, in terms of the interplay there, given there's been a lot of investment in 2.0 products, and the like with respect to Phase 5 and how those two facilities are gonna work together. Thanks.
Yeah. Hey, Graeme. So thanks. Yeah, it's a good question. I mean, when we look at it, you know, in terms of the overall structure. You know, the overall structure is, you know, a lot of the activities that the CoE will be doing will be occurring within that Phase 5. I mean, it's actually being structured in part as an R&D center, and we've, you know, we've really structured it that way. So, you know, again, we've been building it out and again, when we talk about CAD 30 million, that's our contribution in terms of what that will look like. So, you know, a very limited amount of work will be needed from a construction perspective. It's really about additional equipment.
It's really about additional testing and personnel, and a big part of this will be some of that testing that goes on. So, and I just wanted to clarify a question that was asked earlier about commercialization. You know, as I said, you know, it's important to understand. I mean, the goal as they align at this point is that each company will be independently commercializing, and, you know, under our own brands. And, you know, when I said that there's potential where we could determine in one market, you know, that hasn't been decided as of yet. It really is at this point, any commercialization activities would be, you know, each company does their own thing under their own brands. Anyway, sort of to jump in on that, just want to clarify it. Great.
No problem, Greg. Just as a follow-up then, with respect to your comment there, and that was helpful, each company independently commercializing then. Given the exclusive, exclusivity agreement, you have that in Canada, and then my understanding is it's not exclusive on a global basis. That independent commercialization, then, should we be thinking about that more on a global scale and then activities within Canada, that's going to happen exclusively with Organigram?
Yeah. So, just want to clarify the point that's in the press release and kind of as we outlined. So we have a sole license in Canada. That means, you know, that BAT can commercialize directly themselves, but they're not necessarily in a position to sub-license out. So, our focus is, you know, on a sole licensing and again, as we said globally, you know, we're in a position globally where we can choose which markets, you know, that we will go into. A gain, we could do that directly ourselves. We could contract someone to do manufacturing for us, or we could find a partner. You know, at this point, our plan is to commercialize independently, including Canada.
Okay, understood. T hen my last question here is, so there's investor rights within the agreement and, you know, and as well as, some drag along rights there. Other strategic investment deals that we've seen in the cannabis industry have often included a pathway for increased ownership percentage over time, often via warrants. My understanding of the announcement this morning is that's not a feature of this deal. I'm wondering if that was something that was contemplated, as part of your agreement here, and the decision to not have that sort of feature. Thank you very much.
Yeah, Graeme, you know, I can only comment on kind of where we finally, you know, where we did end up, which is, again, with this 19.9 level investment and with, you know, drag-along and top-up rights, and catch-up rights. I think it's important, it's important for both parties that BAT is in a position to maintain that equity position, and certainly their Board representation is a key part of that. And, you know, I think it's, it shows a, you know, a strong investment in us and a focus to the commitment on the collaboration, and that's really the only details I can give.
Understood. Thank you very much, and congratulations again.
Thanks.
Your next question comes on the line for Rupesh Parikh with Oppenheimer.
Good morning. Thanks for taking my question. Also, congrats on the agreement. So, Greg, I just had a clarification, more on the R&D side. So clearly you're going to be investing under the PDC on the R&D side. What happens to your R&D efforts outside of this agreement?
Yeah, it's a great question, Rupesh. I mean, we are free to do, and we will continue to do our own R&D in areas that are not specifically covered under the, you know, the product development collaboration agreement. But there are areas where, you know, again, part of this process has been determining what we roll in and what kind of moves into the Center of Excellence and what we do independently. So we will, in certain product areas, continue to develop those alongside the work that we're doing at the Center of Excellence.
Okay, great and then maybe one follow-up question. So on the CBD side, is there any color in terms of what product categories you'd expect to initially focus on? And then, you know... And I guess, just any overall comments in terms of, you know, how the CBD market is progressing in Canada? Because clearly in the U.S. there's obviously a number of challenges that we've seen in the U.S.
Yeah, I think, you know, maybe I'll answer the second part of your question first. I mean, one of the challenges still in Canada on the CBD market is that, you know, the distribution of CBD products is still restricted to the same channel as THC-based products. I think, you know, we do know that in Canada, the federal government is, you know, they have an expert advisory panel in place. They've indicated that they're, you know, doing additional work to look at, you know, consumer cannabis products and what that looks like, in a more, you know, open manner.
We are optimistic that, you know, in the not too distant future, there will be a change in the regulations that allow for broader addition of CBD products into, you know, into mass merch and into areas with some restrictions, certainly. But, you know, it is why in part we invested in, you know, the chocolate production equipment we have. I think, you know, that will give us a true indication of, you know, what that market size is and what it will look like going forward as, you know, that expansion into that. I think certainly even, you know, it's a limited distribution channel today, so to really tap into the full market for CBD, I think it needs a much broader, you know, broader distribution channel.
You know, the second comment I would make back to your first part of your question is, you know, we, we're not in position yet to specify which products are prioritized, in terms of near term, but again, other than just saying kind of oral and vapor are two categories where there's a big focus, and both companies bring expertise in that area.
Great. Thank you. I'll pass it along.
Your next question comes on the line from Rahul Sarugaser with Raymond James.
Morning, Greg Engel. Thanks so much for taking our questions, and congratulations from us as well on this morning's announcement. So our question is, Organigram was an early mover after Canadian legalization to much success. So given that the one other major cannabis player that has one of these big tobacco partnerships, and as well as a big R&D investment in Hyasynth, they're looking to have their first Hyasynth-synthesized products on the market before the end of the year.
So do you see Organigram potentially, Organigram and/or BAT potentially having these fermentation-derived products in market around the same time? And I'll quickly squeeze in my follow-up question, which is: You mentioned that you have a focus on minor cannabinoids. However, Hyasynth is one of the most advanced biosynthetics companies developing major cannabinoids. Could Organigram be one of the first to have a fermentation-derived, major cannabinoid product on the market?
. Yeah, it's, you know, again, and you know, your comment on Hyasynth is accurate in terms of Hyasynth to date has, you know, had two paths. One has been focused on major cannabinoids, and again, with their experience last year being the first company to actually sell, you know, its CBDA in the United States through the contract manufacturing site. You know, having that first commercial sale was a big milestone. I think in addition to that path, they're focused on minor and I just, you know, the reason I always bring up minor, as you know, is, you know, I think minor is where the future value unlock is in terms of really creating innovative new products.
Because these, you know, minor cannabinoids are at such low levels in the plant, you can't produce them from large scale agricultural production. I guess, you know, that was my reference. I can't speak to the timing around kind of commercialization. I think, you know, you'd certainly have to speak to, you know, Kevin and the team at Hyasynth for an update on their progress. But I think, you know, we do see at some point in the future where, you know, production of biosynthetically produced major and minor cannabinoids is as a source for products for us and then for others in the market, so.
Terrific. That was both my questions and, congratulations again.
Your next question comes from the line of John Zamparo, CIBC World Markets.
Thanks. Good morning, and congrats on the deal. Greg, I was wondering how this or if this changes your outlook with respect to U.S. THC. It seems like a pretty small proportion of these proceeds are earmarked for the center of excellence, and for the PDC agreement, and it's a fairly material amount left over for general corporate purposes. So do you view the primary plan for those additional funds as just providing optionality for the U.S. or International, or does this change your thinking on the U.S. in any way?
Yeah, I think we are focused today. I mean, certainly, you know, we will be using a small portion of those funds to continue our own R&D efforts, independent of the Center of Excellence. But I think when we look at, you know, as to your point, John, we're in a position where it provides us optionality in terms of the overall market. And, you know, we will continue to look, as we have been, both internationally and in the U.S., at different ways to enter those markets. I think, you know, one of the challenges continues to be the regulatory framework.
And again, we, you know, we're only going to enter a market or you know, move into a market where there is a you know, legal regulatory framework in order to do that. But I think, you know, we're continuing to see that evolve on the CBD side globally. We continue to see that evolve on the THC side a nd I think there's certainly lots of optimism on THC in the U.S. right now with the current administration that you know, that could and should and will move forward at some point, but it's difficult to assess the timing.
So, but as you say, it does give us additional capital to allow us to make a move into other markets, and you know, we'll be evaluating those. Our approach has always been, you know, be strategic in terms of how you enter those markets and, making sure that, you know, it aligns with your own objectives and vision.
Okay, that's helpful. Thanks, and my follow-up is, I would think you'd probably characterize Organigram as one of the leaders on product development and R&D before this deal, as it relates to nano-emulsification or other form factors, so why is that the primary focus of this deal? It seems like in the U.S., particularly on the CBD side, the distribution really can be a difference maker for growing brands, and it seems like this deal is solely focused on IP and product development and not distribution, so I guess the question is: Why not leverage BAT's ability to distribute, either the U.S. or globally?
Yeah. Again, the reason, you know, we are very focused on the product development is, again, we believe that's going to be the differentiator. We have seen, you know, and certainly you've seen it, John, the reports out of the U.S., reports out of Europe, other markets where, you know, there's an inconsistency of products. People have concerns about product quality. People have concerns about, you know, what's actually in the products, especially in the CBD space. And, you know, a lot of products don't deliver on the expectations. So I think, you know, that's the first hurdle, is making sure that, you know, the products that we are developing jointly, in collaboration with BAT, are done in a manner that meets the highest standards that you would expect, you know, of a global consumer packaged goods company.
That before taking those products to market, you're in a position to know that you've done all the rigorous testing on those products. We believe ultimately that's going to win out. You know, we're starting to see that in some of the markets, you know, globally and in the U.S. right now.
Okay, that's great. Thank you very much, and congrats again on the deal.
Thanks.
We have time for only one more question, that comes from the line of Pablo Zuanic with Cantor Fitzgerald.
Thank you. Look, I mean, you've answered, I think, this question already, but I want to just make sure I have it clear. Is there anything in the agreement that prevents BAT from taking stakes in other cannabis companies or in other CBD companies? Thanks.
Yeah, Pablo, so there are certain restrictions. There is a restricted list in terms of, you know, for both companies, in terms of who we can work with. You know, we're not disclosing the full details on some of those restrictions, but, you know, certainly, it's not a complete list. So I think, you know, I guess that's all I can say is that both parties have some level of restrictions. I'm not going to comment specifically on BAT, but both companies have some restrictions.
Right and the second question, and last, you know, we've seen already three tobacco companies get involved in the space, right? Imperial Brands and Altria in different ways, all of them. You know, when I think I understand the synergies on the product development side, but when I think of you know, wellness, the way the European markets are developing, whether novel foods on CBD or whether, you know, more pharmaceutical type of cannabis products on the medical side, I'm just surprised that, you know, companies from other industries like pharma haven't been more active. I mean, do you have any thoughts on that?
I know it's a very general question, but, I would question the value add on the expertise side. I know they can help you make pre-rolls and things like that, but, and on the oral and vape side. But I just wonder for the market to grow, especially on the wellness medical side, I find that expertise from other industries would help more. Do you have any thoughts on that, just quickly?
Yeah, you know, again, I guess the only... Look, we're excited to have this collaboration agreement in place with BAT. We think that, you know, they do bring a lot of expertise. They have a focus, you know, to be honest, in terms of, you know, beyond nicotine and kind of that whole focus in product development. Y ou know, they are a company that is focused on consumer safety and, you know, they've been identified as a leading company from that perspective. I think, you know, where we look at other market segments, you know, I can't comment as to why other companies have not entered the space. I think, you know, I think there are potential collaboration opportunities in the future.
I would point to, you know, again, our investment in Hyasynth, as one of those opportunities where, you know, Hyasynth is well positioned and biosynthesis as a source for potentially, you know, novel minor cannabinoids that could merit further clinical development by a pharma company. But again, I, you know, I can just highlight that from the perspective of, you know, that was our investment thesis, and certainly, you know, you'd have to speak to Kevin and the group at Hyasynth about what their plans are. But I think that may be where we'll see more pharma-like development could be with biosynthesis companies.
Got it. Thank you.
Thank you, ladies and gentlemen. That does conclude today's conference call. We thank you for your participation and ask that you please disconnect your-