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. It is unclear what price per share the associated stock will be issued at.
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 to Constellation Brands (STZ) and deal to buy Acreage Holdings (ACRG-U.CN) contingent upon cannabis sales becoming federally permissible in 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.
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 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 and requires no capital expenditures.
Aurora also touted the addition of Reliva’s “talented U.S. management team with strong international consumer packaged goods backgrounds.” That includes CEO Miguel Martin, a former president of e-cigarette company Logic Technology and a former executive at Altria Sales & Distribution, the sales arm of cigarette giant Altria (MO).
“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.
Aurora said Reliva ranked number one in topicals and number two in overall market share, citing to IRI market research, and has contracts with eight of the top 20 national convenience store chains.
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.
Aurora latest financial results were well-received by investors who saw progress as the company recovers from a year marked by executive departures, balance sheet concerns, missed profitability targets and a de-listing threat from the NYSE that prompted a 12:1 share consolidation.
“Our reset plan was aimed at removing complexity out of our business, and reducing costs to a level that was consistent with where we believe the business to be today,” Singer said last week.
“The company has started to deliver on its reset, with cost cuts and capex in line with guidance, while delivering above-market average growth and maintaining leadership in key segments,” Cantor Fitzgerald analyst Pablo Zuanic wrote in a research note after quarterly results were released.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.