Aurora Cannabis (ACB.TO)(ACB) is set to enter the United States CBD market with a deal to acquire Reliva, a CBD brand sold in over 20,000 American mass retail locations.
Under the all-stock deal, Reliva stakeholders will receive US$40 million in Aurora shares. The deal is expected to close next month. The transaction also includes a potential earn-out of up to US$45 million in cash or stock over the next two years, contingent upon Reliva achieving certain financial targets.
New York-listed Aurora shares climbed as much as 30 per cent in after-hours trading.
“Together, Aurora and Reliva will partner to create an international cannabinoid leader that we believe can deliver robust revenue and profitable growth,” Aurora’s interim chief executive officer Michael Singer stated in a news release on Wednesday.
“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.”
Aurora said the deal is the product of “months of strategic evaluation” within the U.S. hemp industry, and praised Reliva for its “financial discipline, operational focus, and strong execution.”
Rumours have swirled for years about the large Edmonton-based cannabis producer striking a foothold south of the boarder, following in the footsteps of rival Canopy Growth’s (WEED.TO)(CGC) financial ties Constellation Brands (STZ) and deal to buy Acreage Holdings (ACRG-U.CN).
Massachusetts-based Reliva sells a line of CBD gummies, drinks, creams and tinctures in retail stores and Circle K convenience stores across the U.S.
Aurora’s first official foray into the United States comes as CBD-infused products face regulatory uncertainty from the U.S. Food and Drug Administration over their safety for consumption. However, that hasn’t stopped a wide range of infused-products from gaining traction with American consumers for a variety of wellness applications.
Aurora described the deal as “immediately accretive” to its goal of achieving profitability in its first quarter of 2021. Aurora said Reliva has generated positive EBITDA in the 12 months ended March 2020, and the company has no debt.
Aurora also touted the addition of Reliva’s “talented U.S. management team with strong international consumer packaged goods backgrounds.” That includes Reliva CEO Miguel Martin, a former president of e-cigarette company Logic Technology and a former executive at cigarette-maker Altria Sales & Distribution.
“With the assistance of Aurora, we believe enhancements to Reliva’s innovation, consumer insights and marketing systems will allow our portfolio of hemp-derived CBD products to become even more attractive to retailers and consumers in this exciting new category,” Martin added in the release.
Citing a glut of cheap hemp available on the open market, Aurora announced it would divest certain Canadian and European hemp assets for “nominal amount” when it reported its third quarter earnings last week.
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