On Wednesday, Aurora Cannabis (NYSE:ACB) announced that it has signed an agreement to acquire Reliva—a US-based CBD company. According to the agreement, Reliva’s shareholders will receive $40 million worth of Aurora Cannabis shares. Also, the transaction could rise to $45 million over the next two years if Reliva achieves certain financial targets. Aurora Cannabis’s management expects the deal to close next month. However, the deal has to meet the necessary closing conditions.
Reliva is a debt-free company. Notably, the company has reported a positive EBITDA in the last 12 months, which ended in March 2020. Reliva doesn’t require additional capital expenditure or working capital. So, the transaction could help Aurora Cannabis achieve its goal of reporting a positive EBITDA by the first quarter of 2021. Also, the investment was in line with the company’s February 2020 business transformation plan. The company aligned its US investment strategy with an eye on financial discipline, operational focus, and strong execution.
Aurora Cannabis’s growth potential
Aurora Cannabis selected Reliva after evaluating various companies in the US hemp-derived CBD industry for months. The company said that Reliva is ranked first in tropicals and second in overall market share according to IRI data. Reliva’s products are available at over 20,000 retail locations and through e-commerce. With Brightfield Group projecting the CBD business to reach $25 billion by 2025, the transaction could help Aurora Cannabis acquire a significant market share in the US CBD business.
Speaking on the transaction, Michael Singer, Aurora Cannabis’s executive chairman, said, “Together, Aurora and Reliva will partner to create an international cannabinoid leader that we believe can deliver robust revenue and profitable growth. 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.”
The announcement about acquiring Reliva made investors excited. Aurora Cannabis was trading over 34% higher in today’s pre-market hours of trading. Last week, the company reported an impressive third-quarter performance. The company beat analysts’ revenue and EBITDA expectations. The company reduced its cash burn during the quarter, which led to a significant rise in its stock price. Despite the rise, the company is still trading 46.8% down this year as of Wednesday’s closing price. Meanwhile, the announcement about the Reliva acquisition could offset some of the declines.
So far this year, Aurora Cannabis has underperformed its peers and cannabis ETFs. YTD, Canopy Growth (TSE:WEED), OrganiGram Holdings (NASDAQ:OGI), and Aphria (NYSE:APHA) have fallen by 13.8%, 32.6%, and 25.7%, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has declined by 25.8% during the same period. To learn more, read Why Analysts Still Aren’t Convinced about Aurora Cannabis.