The structure of the £75m investment is a 4-year convertible loan to Auxly at a 4% interest rate. The loan is convertible into shares (worth 19.9% of the company at a price of C$0.81/sh, an 11% premium to the closing price) at any point over the 4 years; if it is not exercised by the end of the term, the loan will be repaid in full. Imperial will take a seat on Auxly’s Board, and the Chair of Imperial’s Product Stewardship and Health Group will sit on Auxly’s Safety Board, which will have oversight of the key aspects involved in quality control. Auxly offers Imperial a high quality management with relevant experience and a strong culture of regulatory compliance. Auxly’s operations span the entire value chain of cannabis, from growing to extraction, testing, product development etc. When we met with management recently, it was clear that Imperial views the highly regulated cannabis industry as sharing many of the same characteristics as tobacco. This investment fits with Imperial’s existing NGP strategy, which is to offer product solutions that deliver nicotine across multiple formats, with a particular emphasis on vapour. There are two Tobacco companies invested in the cannabis market: Altria and Imperial. We view Imperial as attractively priced, on 6.9x CY20E PE with a medium-term prospective EPS CAGR of 7% after incorporating modest buybacks. We are optimistic that a new Chairman – due to be announced soon – could bring a much needed fresh perspective to the company and its unique perception challenges in the market.