BAT – British American Tobacco Plc – has invested in German cannabis startup Sanity Group GmbH along with rapper Snoop Dogg’s Casa Verde Capital — the tobacco giant’s latest bet on pot as it diversifies beyond nicotine.
Berlin-based Sanity secured $37.6 million in the BAT-led Series B funding round, according to founder and Chief Executive Officer Finn Age Hänsel. Nearly 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. Separately, BAT said the investment, via one of its wholly owned group companies, gives it a noncontrolling minority stake in Sanity.
The tobacco giant’s bet highlights the promise of the German market, which is Europe’s largest economy and has more than 83 million people. While cannabis use is rising, the number of people smoking cigarettes is decreasing across the developed world, forcing companies such as BAT to eye new areas for growth.
Germany has yet to legalize recreational cannabis, but action is expected sooner rather than later. Although several governments have made U-turns or dragged their feet on pledges to legalize pot, Germany’s coalition government is “working actively on it and really want to come to a good draft of the law by the end of this year,” Hänsel said. “This is really a priority topic for the government.”
With cannabis stocks battered by recession fears and souring investor sentiment, Hänsel said the current environment has made it harder for cannabis startups to raise cash. Indeed, Big Tobacco’s forays into the cannabis space have been hurt by the industry’s recent stock declines.
But even so, sentiment in Germany has been buoyed on recent steps to formulate a legal framework, along with Heath Minister Karl Lauterbach’s support for legalization and Justice Minister Marco Buschmann’s optimism that a law could be passed by next spring.
Public support is also growing broadly in Europe as medical cannabis steadily expands and wellness-focused CBD products explode — causing perceptions to shift after decades of opposition
“This funding is an important milestone for us and a strong signal towards the future of cannabis in Germany and Europe,” said Max Narr, chief investment officer at Sanity Group. “Against the backdrop of a challenging global economy, we are proud to have achieved a funding round of this magnitude.”
The round brings the total raised by Sanity to more than $100 million. Founded in 2018, Sanity Group focus on the development and distribution of cannabis-based pharmaceuticals, medical products and consumer goods. Investors backing the startup besides Casa Verde include musician Will.I.Am and actress Alyssa Milano, among others.
Sanity Group is seeing “strong interest, not only from tobacco, but also from other industries like fast-moving consumer companies,” Hänsel said. He predicted that, as regulations continue to loosen in the US and other markets, marijuana will become attractive to all kinds of companies.
Last year, BAT bought a stake in Canada-based cannabis producer Organigram and invested in Trait Biosciences, which provides technology that makes CBD water-soluble. Btomorrow Ventures, the company’s investment vehicle, has also backed Cannopeia and Kanvas, which are both involved in vaping.