Late Wednesday evening, Aurora announced its entrance in the U.S CBD market with a $40 million all-stock deal to acquire Reliva. Reliva is a producer of nutritional supplements and lotions that contain CBD. The company has agreed to pay an additional $45 million in cash and stock if specific targets are met financially.
Post the announcement, shares of Aurora closed off approximately 13% ahead. The stocks managed to grow even more in after-hours trading.
Aurora Executive Chairman and interim CEO Michael Singer told CNBC, “I think the Reliva acquisition is a responsible strategic entry into the U.S. market; and for Aurora, delivers a key aspect of our reset plan.”
He further added that this acquisition translates to immediate access into the world’s largest cannabinoid market.
Over the previous 12-month period, Reliva has managed to generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA). As a part of its debt pact signed in February, Aurora is required to generate positive adjusted EBITDA by the end of the first fiscal quarter of 2021.
Aurora said that amongst a lengthy list of potential partners, Reliva stood out because of several reasons: their positive EBITDA, emphasis on regulatory, testing and compliance protocols, a strong marketing team with substantial experience and strong relationships with important trade partners.
In February, Aurora’s CEO Terry Booth retired. The company announced 500 layoffs and a write-down of approximately $700 million in product and equipment.
Aurora reported net losses of about $980 million on net revenues of $47.7 million during the second fiscal quarter of 2020. Over the fourth quarter of 2019, the company’s international medical cannabis revenues fell from $3.8 million to $1.5 million.
Singer believes that the acquisition deal will resonate with investors and help restore the confidence that they lost in Aurora and cannabis stocks.
Singer said that along with the long-term goal of entering the U.S. market for CBD and cannabis, the deal also complements the short-term goal of Aurora reaching profitability in the next fiscal year.
“It’s creative and profitable,” Singer said, further adding that Reliva has no debt. “Reliva has access to 20,000 retail locations and even more important strong relationships with the leading wholesalers and distributors in the U.S.”
Singer believes that the partnership will “create an international cannabinoid leader that we believe can deliver robust revenue and profitable growth.”
In one of the statements, Singer said, “We have taken the time necessary to carefully assess the Company’s entry into the U.S. market, and we firmly believe that the combination with Reliva will create significant long-term value as Reliva provides us options to grow in hemp-derived CBD internationally. Similar to Aurora, Reliva has a strong entrepreneurial spirit and successful track record of transforming categories and creating growth brands.”
On the other hand, Miguel Martin, CEO of Reliva, said in a conversation with CNBC that the deal would increase the scale of Reliva and its international exposure while maintaining its pricing to capitalize on the U.S market during the COVID-19 pandemic.
Martin added, “All of our products retail for less than $20. When you are dealing with mass retail, it is important that you provide that type of spectrum of pricing, particularly in this market where affordability of value are particularly important.”
Although the deal is expected to impress investors, cannabis analyst Bill Kirk of MKM Partners told CNBC that the deal might have headwinds since there is a lack of clarity on edible CBD from U.S FDA and declining prices of CBD in the U.S.
Kirk believes that the deal may not excite investors and shareholders. He said, “Aurora investors are sick of the equity dilutions they are experiencing. The company has done deals using their equity, and Aurora has had to raise equity to pay expenses.”
The deal, which marks Aurora’s entry into the U.S. cannabis market, is expected to close in June.