Shares of Aurora Cannabis (ACB.TO)(ACB) are continuing their rollercoaster ride, climbing more than 30 per cent on Thursday following the announcement of a deal to expand the company’s reach south of the border.
The Edmonton-based company is set to acquire all issued and outstanding membership interests of the Massachusetts-based CBD brand Reliva for US$40 million. The deal also includes a potential earn-out of up to US$45 million in cash or stock based on performance.
Toronto-listed shares rallied to begin Thursday’s session, extending the whipsaw trade that began after Aurora reported third quarter earnings last week. Shares have climbed nearly 180 per cent in the past five days.
Aurora said it expects the American CBD market could reach US$24B by 2025. However, the company’s move south comes at a time of regulatory uncertainty following the federal decision to loosen restrictions on hemp production two years ago.
The U.S. Food and Drug Administration is treading a cautious path. Currently companies are not allowed to add CBD to food, drinks or cosmetics. The agency has been cracking down on companies that do so. That hasn’t stopped a wide range of edible and beverage products targeting wellness-minded consumers from gaining mass popularity.
“The consumer CBD industry faces temporary challenges in the U.S., but the industry has long-term upside, valuations have pulled back, and we think Reliva has a unique channel and price positioning that allowed it to perform quite well pre-COVID,” Cantor Fitzgerald analyst Pablo Zuanic wrote in a note to clients on Thursday.
“Aurora has the ability to start building its infrastructure out to capitalize on the potential for a more benign FDA environment on CBD and THC legislation that makes it federally permissible to operate domestically,” Cowen analyst Viven Azer wrote in a research note.
“The deal structure also allows Aurora to make the investment while protecting its cash while providing performance-based incentives to Reliva.”
BMO Capital Markets analyst Tamy Chen touted Relive’s access to American convenience store shelves. The company is currently the only hemp-derived CBD retailer supplying to the top three U.S. convenience wholesale distributors.
“We believe distribution will play a key role in brand development as we expect the hemp-derived CBD category to evolve similarly to other health and wellness CPG verticals,” she wrote on Thursday.
Aurora’s health and wellness verticals could leverage the company’s partnership with the Ultimate Fighting Championship. The brands teamed up last year to research the recovery and pain management properties of CBD, and have jointly launched a brand called ROAR Sports.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.