Organigram Global Inc. (OGI) Earnings Call Transcript & Summary

Good morning. My name is Tabitha, and I will 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. [Operator Instructions] As a reminder, this conference call is being recorded, and a replay will be available on OrganiGram's website. At this time, I would like to introduce Amy Schwalm, Vice President, Investor Relations. Please go ahead.

Thanks, Tabitha. Both 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 Chief Executive Officer, Greg Engel; and our Chief Strategy Officer, Paolo De Luca. Per Slide 2, 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 and 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 3 with a brief snapshot of OrganiGram for those particulars on this call that are less familiar -- sorry, 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 has been focused on automation, technology and innovation, and this collaboration with BAT takes our commitment to a new level. Turning to Slide 4, 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 with some good success. For example, our newer SHRED value brand has been the #1 most search brand for the last 4 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 '21, our most recent reported quarter. We also generated positive cash flow from operations in Q1 fiscal '21, the second quarter of the last 3 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 5. 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 powder 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 2 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 exist in very low levels in the plant. Minor cannabinoids are believed to be the next frontier of cannabis research and novel cannabis product development. So moving to Slide 6 and on to our announcement for today. So there are 2 principal elements to our announcement, a strategic investment of approximately CAD 221 million or USD 175 million by a subsidiary of BAT for 19.9% equity interest in OGI; and two, a Product Development Collaboration agreement, or PDC agreement, which includes the formation of a Centre 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, raise a 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 Centre of Excellence means we will closely collaborate with BAT, a 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 USD 235 million. About CAD 30 million or USD 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. The license, which is a non-exclusive outside of Canada and solely in Canada, will also enhance our ability to enter international markets including through sublicensing arrangements with established operators. Third, the transaction allows us to leverage BAT's expertise for our wider operations through the Centre of Excellence and BAT's representation on our Board of Directors. We will have direct access to BAT's expertise through the Centre of Excellence, including scientists, researchers and product developers as well as the members of the Steering Committee, which will oversee the Centre of Excellence. BAT is also entitled to add 2 Board members to our Board of Directors. Today, we announced the addition of 1 BAT nominee, Mr. Jeyan Heper and another nominee is expected to be added in the near term. Mr. Heper, who is a group 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 to 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 7. 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 8. Slide 8 highlights some of the key elements of the Centre 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 9, 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 $3.79. The price per share is based on the 5-day VWAP price on the TSX ending March 9, 2021. This results in total proceeds to OGI of approximately CAD 221 million, or USD 175 million. And as I mentioned earlier, about CAD 30 million or USD 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 Centre of Excellence will be funded equally by both parties. COE will focus on the development of cannabis paper products, cannabis oral products and any other products, IP and technologies the parties mutually agree upon. BAT is entitled to appoint 20% of OGI's Board for as the long 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 USD 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 our commitment to R&D is critical to establish our 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. Paul and I would now be happy to answer your questions.

[Operator Instructions] Your first question comes from the line of David Kideckel with ATB Capital Markets.

Congratulations on this deal, the OrganiGram team. My first one relates to, I think, Greg, in your prepared remarks and on the press release itself, through your partnerships here with that. You're going to 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 that to coincide with Hyasynth's additional product offerings and also the other minor cannabinoids?

Yes. It's a great question, David, and thanks for asking. So yes, 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. And I think again, we use the general commentary about CBD and THC. But I mean, again, minor cannabinoids do play a key point. And I think when we look at -- and part of our investment thesis on Hyasynth has always been that 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-based products 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 bring those new innovative products to market. So it's a great question. And yes, that was part of the consideration here.

Great. And just as a follow-up. Just wondering, what is your priority with that? 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 time line for when you expect any given product to hit the shelves?

Yes, it's a great question. So certainly, we don't have time lines specifically. I think we're just in those kick-off stages. We have developed a very specific plan as to what products we'll be working on and when over the 3 years -- over the next 3 years and have some thoughts on kind of timing on market, but neither ourselves or BAT's in a position to kind of publicly disclose what that is. I think when you look at the near-term opportunity for us, the immediate opportunity is certainly in 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 new products that are jointly developed and new forms that are jointly developed and bring those into other markets. And again, that's why I think 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 into other areas, including THC going forward.

Our next question comes from the line of Andrew Partheniou with Stifel GMP.

Congrats on this announcement. Maybe just a little bit more high level. Could you give a little bit more color on how the talks progressed? How they started? And given the significant amount of time between now and when legalization happens, BAT has probably pick of the litter in terms of who to partner with. Could you give a little bit more color on why they chose OrganiGram, in particular?

Yes. I mean maybe I'll answer the second part of your question first, Andrew. I think based on the feedback we've heard from BAT that they've been very impressed with our -- we have a state-of-the-art facility. I mentioned it earlier, we're committed to R&D and innovation and product development. So there's definitely a cultural fit that aligns between the 2 companies in terms of how we see cannabinoid science and cannabinoid products developing and going forward. Certainly, again, they've made comments about the strength of our management team, our commitment to compliance. And through the process, we've developed a very strong relationship with the BAT team. And we believe, as I said earlier, there's a very strong cultural fit and alignment to make this collaboration successful. And I think any time you look at collaboratively working with someone, that's one of the most critical things, again, in the Centre of Excellence, we will be having seconded employees from the U.K. and U.S. from BAT working at our OrganiGram facility, will be contributing employees. But we'll also be hiring new people to fill out the team and 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, as you can imagine, it's been extensive due diligence. It has been more challenging to do with COVID, certainly. But certainly, we've been able to do things virtually including virtual tours. And the teams have worked incredibly well. And I think it's been a great process. And I think the cultural fit for me and for us and our Board. And again, we've heard those comments from the team that BAT is one of the most critical aspects of this collaboration.

And maybe switching gears, talking a little bit about IP and how bringing all of this to market. Could you give a little bit of color on how yourself and BAT, to the extent possible that you could talk about it, obviously, are going to -- the results of your R&D collaboration agreement. How do you expect that to be launched in tandem with that or independently? Or any other color that you could provide in terms of the future prospects of the results of this R&D?

Yes. No, it's a great question, Andrew. I think we're -- again, the key here is both companies are contributing background IP into the collaboration. And then from that, we'll be developing foreground IP that both companies will have access to. And I think for each company, I mean, we -- I can't speak to kind of their commercialization plans and timing. But for us, as I said earlier, for us, the nearest term opportunity to bring products to market is certainly in Canada. But 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 existing IP that we have. And I think, again, that is also under the guys 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 this -- we've been talking about this concept for many months where our focus has always been and continues to be develop new products, innovative products that are transferable to other jurisdictions. And now this collaboration with BAT accelerates that, brings a deeper bench strength in terms of knowledge and IP and will allow us to really bring those innovative new forms to global markets.

Your next question comes from the line of Adam Buckham with Scotiabank.

Congratulations on the deal. 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 Centre 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?

Yes. I mean it's a pretty simple, straightforward answer. So for ease of administration, both parties agreed that BAT would own any rising IP and then grant us licenses to utilize it. 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 when we say grant, this is -- as IP is submitted, I mean, this agreement is perpetual royalty-free ongoing. So those will be issued at the time the IP is filed, but there's no specific process of kind of granting. 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 commercialization perspective.

Okay. And then secondly, I just wanted to focus maybe on the impact of costs we'll have on OGI from the Centre 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.

Yes. So we have noted in the release that approximately CAD 30 million of the CAD 221 million that's been invested, roughly has been allocated to that. So a portion -- again, a portion of the proceeds will be allocated to that. So this will be jointly funded, though, between the 2 companies. So again, that's really that timing. We expect initial costing to start within 60 days. Again, we've identified internal parties on both sides that we're looking to secon to it. We've already started work on some of the additional equipment and construction changes within our facility to expand some of their R&D activities. And so I think you'll start to see that happening over the near term?

And our next question comes from the line of Aaron Grey with Alliance Global.

I'd like to echo my congratulations on the partnership. So first question for me, just like to double back in terms of kind of the potential commercialization with IP, just like looking at specific markets, like say, U.S. for existence. Obviously, BAT has pretty broad distribution. So could you help us kind of conceptualize how something might come to term with you guys come up with some IP from some product for CBD, for example, which is more broadly distributable today? And how kind of that could go-to-market would technically be like independent? Would there be 2 different brands between like a BAT and OrganiGram and then you deleverage your own distribution and you guys having to find it out 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.

Yes. It's a great question, Aaron. And I think where -- when we look at commercialization activities, I mean, none of that's been determined, 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., we could enter the market through 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 to in terms of what that could look like, but certainly, there are opportunities for accessing the markets with some restrictions in kind of those 3 different ways. So I think, again, I can't comment on BAT's plans, but I think certainly, that's how we look at the market, and there may be opportunities where we could jointly decide that only 1 party commercializes and that could be contemplated as well. But certainly, again, we're not at the stage that we're looking at how to commercialize. We're really focused on how do we develop the products and what products we're focused on today.

Okay. Great. That's super helpful. And then 1 follow-up. You mentioned the initial focus on products being vapor and oral, but you also mentioned kind of the combined expertise in terms of the plant expertise that BAT has. So are you also looking to potentially kind of leverage in 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 do you plan to use this beyond just the R&D output kind of your overall opportunities in business as you guys continue to work to improve your own yields?

Yes, it's a great question. We -- so certainly, the core focus of the Centre of Excellence is going to be on oral and vapor products or other products that we determined jointly to kind of work on. But I think, again, understanding they have deep plant genetic expertise, and we have had meetings with that group, and I think there's opportunities to provide some assistance to our team 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, again, that there's an opportunity to do that. I think certainly one that we'd like to be able to take advantage of, and those teams have had initial discussions.

Our next question comes from the line of Vivien Azer with Cowen.

So BAT, a couple of 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.

Yes. Hey, Vivien. So yes, they've launched under the VUSE Platform CBD product in Manchester in the U.K. in a limited market. And I think really, for them, what we understand from what we've seen is that it's a test market for them, and really, that's how they're treating it. 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 that's, at this point, is what we're looking to from not, at least from a COE perspective is to garner consumer feedback from that work.

Got it. And a quick follow-up. You mentioned some shared IP, and you mentioned vapor specifically. But does heat-not-burn fall into the IP sharing agreement as well?

We're not disclosing full details in terms of like which specific IP. I mean as you know, BAT has got a very deep and broad portfolio of IP that they're contributing to it. And I guess all I'd say is vapor and oral products are the focus.

Your next question comes from the line of Graeme Kreindler from Eight Capital.

Congratulations. I wanted to follow up with respect to the Centre of Excellence. And the CAD 30 million budget allocated to that. How is that going to tie in with OrganiGram Stage 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 2 facilities are going to work together.

Yes. Graeme, So thanks, yes, it's a good question. I mean when we look at it, in terms of the overall structure of the -- specify that the overall structure is a lot of the activities that with the COE we'll be doing, will be occurring within that Phase 5. I mean it's actually been instructed in part as an R&D center, and we've really structured it that way. So 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 a very limited amount of work when we needed form 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 sort of that testing that goes on. And I just wanted to clarify a question that was asked earlier about commercialization. As I said, it's important to understand. I mean, the goal, as I aligned at this point, is that each company will be independently commercializing and -- under our own brands. And when I said that there's potential where we could determine in one market, that hasn't been to soft business of yet, it really is at this point. Any commercialization activities would be each company does their own thing under their own brands. Anyway, sort of to jump in on that. I just want to clarify it, Graeme.

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 exclusivity agreement, you have that in Canada, and then my understanding is that 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 within the OrganiGram?

Yes. 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 that BAT can commercialize directly themselves, but they're not necessarily in a position to sublicense out. So our focus is on a sole licensing. And again, as we said, globally, we're in a position where we -- we're in a position globally where we can choose which markets that we will go into. And again, we could do that directly ourselves. We could contract someone to do manufacturing for us or we could kind of partner. It is -- at this point, our plan is to commercialize independently including in Canada.

Okay. Understood. And then my last question here is there's investor rights within the agreement 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.

Yes. Graeme, I can only comment on kind of where we finally, -- where we did end up, which is, again, with this 19.9% level investment and with drag-along and top-up rights and catch-up rates. And I think it's important for both parties that BAT is in a position to maintain that equity position. And certainly, the Board representation is a key part of that. And I think it shows a strong investment in us and a focus to the commitment on the collaboration. And that's really the only indicator that I can give.

Your next question comes from the line of Rupesh Parikh with Oppenheimer.

Congrats on the agreement. So Greg, I just had just 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?

Yes. 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 Product Development Collaboration Agreement, but there are areas where -- again, part of this process has been determined what we roll in and what kind of moves into the Centre 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 Centre 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 would expect to initially focus on? And then any -- and then I guess, just any overall comment in terms of 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.

Yes. I think maybe I'll answer the second part of your question first. I mean one the challenges still in Canada CBD market is that the distribution of CBD products is still restricted to the same channel as THC-based products. And I think we do know that in Canada, the federal government is -- they have an expert advisory panel in place. They've indicated that they're doing additional work to look at consumer cannabis products and what that looks like in a more open manner, and we are optimistic that in the not-too-distant future, there will be a change in the regulations that allow for broader addition of CBD products into mass merchant into areas with some restrictions certainly, but it is why in part we invested in the chocolate production equipment we have. And I think that will give us a true indication of what that market size is and what it will look like going forward as that expansion into that. And I think certainly, even it's a limited distribution channel today, so to really tap into the full market for CBD, I think it needs a much broader distribution channel. The second comment I would make back to your first part of your question is, 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 2 categories where there's a big focus. And both companies bring expertise in that area.

Your next question comes from the line of Rahul Sarugaser with Raymond James.

Greg, congratulations from us as well on this morning's announcement. So our question is, OrganiGram was an early mover after Canadian regularization to much success. So given that the one other major cannabis player that has one of the big tobacco partnerships as well as a big R&D investment in the biosynthesis. They're looking to have their first biosynthesized products on the market before the end of the year. So do you see OrganiGram potentially -- OrganiGram and/or BAT essentially having the fermentation drive products in the 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 biosynthesis companies developing major cannabinoids. So could OrganiGram be one of the first to have a fermentation drug major cannabinoid product on the market.

Yes. It's again -- and your comment on high synthesis accurate in terms of Hyasynth, today it has -- had 2 paths. One has been focused on major cannabinoids. And again, with their experience last year, being the first company to actually sell a CBDa in the United States through a contract manufacturing site, being -- having that first commercial sale is a big milestone. I think in addition to that path, they're focused on minor. And I just -- the reason I always bring up minor, as you know, is I think minor is where the future value unlock is in terms of really creating innovative new products and because these minor cannabinoids are at such levels in the plan, you can't produce them from large-scale agricultural production. And so I guess, that was my reference. So I can't speak to the timing around kind of commercialization. I think you certainly have to speak to Kevin and the team at Hyasynth for an update on the progress, but I think we do see at some point in the future where production of biosynthetically produced major and minor cannabinoids as a source for products for us and for others in the market.

Your next question comes from the line of John Zamparo, CIBC.

Congrats on the deal. Greg, I was wondering how this sort -- 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 Centre 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?

Yes. I think we are focused today. I mean, certainly, we will be using a small portion of its funds to continue our own R&D efforts independent of the Centre of Excellence. But I think when we look at -- as to your point, John, we're in a position where it provides us optionality in terms of the overall market. And we will continue to look as we happen, both internationally and the U.S. at different ways to enter those markets. I think one of the challenges continues to be the regulatory framework. And again, we're only going to enter a market or move into a market where there is a legal regulatory framework in order to do that. But I think there -- we're continuing to see that evolve on the CBD side globally. We continue to see that evolve on the THC side. And I think there's certainly lots of optimism on THC in the U.S. right now with the current administration. 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 we'll be evaluating those. Our approach has always been be strategic in terms of how you enter those markets and making sure that it aligns with your own objectives and vision.

Okay. That's helpful. And my follow-up is, I 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? Because 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?

Yes. Again, the reason we are very focused on the product development is, again, we believe that's going to be the differentiator. We have seen -- and certainly, you've seen it, John, the reports out of the U.S., reports out of Europe, other markets where there's an inconsistency of products. People have concerns about product quality, people have concerns about what's actually in the products, especially in the CBD space, and a lot of products don't deliver on the expectations. So I think that's the first hurdle is making sure that 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 of a global consumer packaged goods company and 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. And we believe ultimately, that's going to win out, and we're starting to see that in some of the markets globally and in the U.S. right now.

We have time for only one more question that comes from the line of Pablo Zuanic with Cantor.

Look, 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?

Yes, Pablo, it's -- so there are certain restrictions. There is a restricted list in terms of -- for both companies in terms of who we can work with. We're not disclosing the full details on some of those restrictions. But certainly, it's not a complete list. So I guess that's all I can say is that both parties have some level of restriction, so I'm not going to comment specifically on BAT, but both companies have some restrictions..

Right. And the second question and last. We've seen already 3 tobacco companies get involved in the space, right, Imperial brands and Altria in different ways, all of them. When I think -- I understand the synergies on the product development side, but when I think of wellness, the way the European markets are developing, whether novel foods or CBD or whether more pharmaceutical type of cannabis products on the medical side. I'm just surprised that 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 know a tobacco company felt desperate, but I would question the value-add on the expertise side. I know they can shop you make pre-rolls and things like that. And on the oral and vape side. But I just wonder for the market to grow, especially on the wellness medical side, the final expectation of other industries would help more. Do you have any thoughts on that just quickly?

Yes. Again, I guess only -- look, we're excited to have this collaboration agreement in place with BAT. We think that they do bring a lot of expertise. They have a focus, to be honest, in terms of beyond nicotine and kind of that whole focus on product development, and they are a company that is focused on consumer safety, and they've been identified as a leading company from that perspective. And I think where we look at other market segments, I can't comment as to why other companies have not entered the space. I think there are potential collaboration opportunities in the future. And I would point to, again, our investment in Hyasynth as one of those opportunities where Hyasynth is well positioned in biosynthesis as a source for potentially novel minor cannabinoids that merit further clinical development by a pharma company. But again, I'm not -- just highlight that from the perspective of that was our investment thesis. And certainly you'd have to speak to Kevin and the group at Hyasynth to know what their plans are, but I think that may be where we'll see more pharma-like development could be with biosynthesis companies.

Thank you, ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect.