British American Tobacco invests in cannabis firm

British American Tobacco has made another investment in cannabis as part of its push to diversify away from cigarettes, this time partnering with CBD firm Charlotte’s Web to develop a drug for an undisclosed neurological condition.

A joint venture of AJNA BioSciences PBC, Charlotte’s Web and a BAT subsidiary plans to seek approval from the US Food and Drug Administration for a treatment made from hemp extract. BAT invested $10 million in the deal.

Charlotte’s Web, which BAT invested in last year, and AJNA each own 40% of the entity, while BAT controls the remaining stake, according to a statement.

Even though the cannabis industry faces hurdles, tobacco companies are increasingly investing in the sector to move away from legacy tobacco products, like cigarettes, that have experienced declining demand.

BAT has also put money into OrganiGram, a Canadian cannabis firm, and German cannabis company Sanity Group in joining Snoop Dogg’s Casa Verde Capital.

So far, despite the medicinal promise of marijuana, few companies have made specific efforts to pursue FDA-authorized drugs.

The agency has blessed only one such drug, GW Pharma’s Epidiolex. However, the agency notes it has also approved three synthetic cannabis-related drug products.

“This is the first move by tobacco into drug development,” said Jefferies analyst Owen Bennett in a research note. The prospects are attractive, he said, considering that Epidiolex, a treatment for seizures made from CBD, generated $740 million in sales last year.

The influx of big tobacco money is a boon for an industry that’s otherwise struggling with low wholesale prices, political challenges and a crowded, competitive landscape, including illegal marijuana growers.

The joint venture will start clinical development this year and described the drug candidate as a “novel botanical drug to target a neurological condition.” BAT declined to give more details about what the drug will treat.

The shares of Charlotte’s Web gained as much as 21% on Thursday. BAT’s stock rose as much as 1.5%.