Aurora Cannabis stock spiked yet again late Wednesday after the Canadian pot producer announced an acquisition to enter the U.S. retail CBD market for the first time — even as rivals lament the lack of clarity surrounding regulations of the substance. Other marijuana stocks rose late too.
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After the close, Aurora Cannabis (ACB) said it would buy Reliva, a CBD retail brand in the U.S., in an all-stock deal. Reliva will get around $40 million of Aurora Cannabis stock. The deal also includes a possible earn-out — or an arrangement for future payments depending on how well the deal goes — of up to $45 million.
That $45 million is payable in Aurora stock, cash, or both over the next two years, and hinges on Reliva's ability to hit certain financial goals. The companies expect the deal to close in June. Cowen advised Aurora on the deal.
Aurora said it expected the deal to immediately add to its profits — on an "adjusted" EBITDA basis — as it tries to reach profitability by that measure in the first quarter of its next fiscal year. EBITDA stands for earnings before interest, taxes, depreciation and amortization.
Unlike some of its bigger rivals, Aurora has hesitated on entering the U.S. But in choosing Reliva, the company cited its focus on regulatory compliance, its management team, as well as the company's connections with trade partners and "financial discipline and track record of growth and profitability."
"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," interim CEO Michael Singer said in a statement.
The deal marks a deeper move into the U.S., after Aurora last year launched a CBD-focused research program with the UFC mixed-martial arts league.
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Aurora Cannabis Stock, Marijuana Stocks
Aurora Cannabis stock launched 33% higher after hours in the stock market today, after finishing the regular trading day 13% lower. The move higher for Aurora Cannabis stock follows a massive jump last week after the company reported quarterly sales that beat earnings.
Among other marijuana stocks, Canopy Growth (CGC) gained 2.5% after hours. Tilray (TLRY) added 1.4%. Cronos Group (CRON) rose 1.4%. Aphria (APHA) was up 1.1%.
Aurora Cannabis stock had fallen through much of last year, as worries piled up over disappointing sales and thinning cash supplies. The IBD Composite Rating for Aurora Cannabis stock is a weak 13. Its EPS Rating is 17.
Marijuana Stocks With FDA Reservations
The 2018 Farm Bill legalized hemp, a source of CBD, or cannabidiol, in 2018. The substance, also found in higher-THC cannabis plants, has brought with it a wide range of therapeutic claims, even as thorough research remains scarce.
But the FDA has clamped down on companies selling CBD, alleging a breach of its guidelines. U.S. stores selling CBD products have faced inspections. Executives in the cannabis industry have noted retailers' reluctance to sell more of it.
Cronos Group in March said it would pause the distribution of its distribution of its hemp-derived Peace+ CBD tinctures, which were set to be sold at around 1,000 U.S. retail stores. The company also said that the coronavirus pandemic had shifted regulators' priorities away from CBD.
Tilray, meanwhile, has had to book big charges related to a deal it struck with Authentic Brands Group, a marketing and entertainment company. Management for the Canadian pot company said the arrangement could make Tilray-made CBD products available for sale in the U.S.
"Given the uncertainty of the FDA stance on the sale of CBD products in the U.S., we concluded the near-term expectations for sales under this agreement did not support our balance sheet value," CFO Michael Kruteck said this month.
