Aurora Cannabis shares jump after buying U.S. CBD company

Aurora Cannabis shares surge after the company agreed to buyout U.S. CBD company Reliva. Yahoo Finance’s On The Move panel shares the details.

Video Transcript

- And shares of Aurora Cannabis today are up by 24%. And that's as the Canadian cannabis company expands into the US with an acquisition. The path for Canadian cannabis has not been quite as smooth as many had predicted. Our own Zack Guzman, special guest, coming in on the show today, is here to talk to us about this deal.

So Zack, what does this deal look like and what is it going to mean for Aurora?

ZACK GUZMAN: So you know, a lot of investors have been waiting for Aurora, obviously one of the bigger Canadian cannabis giants out there, to make their move into the much larger US cannabis market. Now investors finally getting what they've been waiting for. And you're seeing that in the stock performance today.

But the company's going to be paying $40 million in Aurora stock to buy us CBD company Reliva. Reliva makes a range of CBD products, everything from drink mixes to gummies, lip balm, pet [AUDIO OUT], as well as skin cream. So that's what they'll be getting in this deal. Potentially also paying $45 million if Reliva hits certain financial benchmarks down the line.

So it's a foothold and it's an entry point into the US market. But keep in mind, its other Canadian competitors have already made their own entry point in this market as well. Canopy Growth launched its own CBD line, First & Free, a while back. So they already have kind of a lead here in that regard. It's also a pretty crowded space with other competitors.

But as you note, the shares are up more than 20% today. Keep in mind, over the last 12 months Aurora has lost nearly 90% of its value, as investors have waited for a move like this. The CEO, Michael Singer, says the move that it's doing right now in buying Reliva will help it meet its goals of hitting adjusted EBITDA and profitability by the first quarter of fiscal 2021. But still a lot of questions over that.

We'll be able to ask Michael Singer, the CEO of Aurora Cannabis, about that tomorrow. He'll be joining us in the 1:00 PM hour to answer more of those questions. But an interesting move to finally get in to the US market here, as CBD continues to grow.

- Zack, I've got to ask, you know, CBD aside, when will people be able to smoke jays in more US states?

ZACK GUZMAN: It's a good question, Ali. I mean, we were waiting on, you know, obviously we've seen states adjust their laws. On a federal level, there is still a lot up in the air, given that this is an election year. So that is clearly a lot further down the line.

But even something that should be more addressed here when we think about CBD, there's still not any real national guidance when we think about the FDA still dragging their feet and giving the updated guidance on something that is way less provocative, thinking about the non psychoactive compound CBD that comes from the hemp plant here. And we still don't have questions on that. A lot of people were expecting that to already be answered at this point in 2020. But that's on the back burner here.

So to your question of smoking jays, I think that one might be a little bit maybe even beyond the presidential election. But CBD is still a pretty impressive market in its own right, expected to be about $25 billion, when you look at US sales here, by 2025. So clearly still an opportunity here for these companies to make money on the CBD front. And clearly much more legal around the country for the time being.

- Howley, Guzman, just come to California. Many jays here to be had. I want to circle back to this Aurora-Reliva deal quickly. Just thinking about one of the main kind of bright points was that Reliva I think is sold in 20,000 retail locations across the United States. Retail stores are still very much closed. People are not necessarily going to stores to get CBD. Zack, do you imagine that the DTC side of things, like the Lord Joneses, the more bougie, premium brands that kind of have skipped over the retail stores are going to be doing well and maybe this is almost a backward looking acquisition?

ZACK GUZMAN: I mean, Reliva's sold, as you pointed out, in a pretty good amount of retail locations, Circle K being one of them. And their price point's a little bit more on the lower end with things priced below 20 bucks. So I mean, there is that aspect that Aurora is pointing to, saying that in a pandemic, when cash might be tight, at least having a lower price point could help there.

On the e-commerce side, I mean, it is just one of those spots where, you're right, and we've seen this consolidation in some of the bigger players that got off to a quickly start in the way that they were really taunting their retail relationships and getting in the CVSes and getting in the Targets and other stores out there, offering these products, which really necessarily has not played out, when you think about the shift to e-commerce here.

But Reliva is one of those companies that at least Aurora will be able to start building out and start getting that brand loyalty here, because it has become a bit of a commoditized product out there when you think about, it's just a solution derived from the hemp plant, not a lot you can use to distinguish yourself in the space. So really, still carries a lot of investment on the marketing front. We've seen that from a lot of CBD companies out there battling with each other. Whether or not you're in retail locations or emphasizing e-commerce right now, you still have to spend to really make sure that consumers out there, looking to try a new product, still trust your brand over the others as well. Not an easy thing to do.

- And Zack, you said that Michael Singer, the Aurora CEO, will be on your show tomorrow, correct?

ZACK GUZMAN: Correct. In the 1:00 PM Eastern time hour, an interview with Aurora Cannabis CEO Michael Singer. Do not miss it. I will personally attend.

- Mark your calendars. Thank you, Zack, really appreciate it.