Aurora Cannabis, a Canadian cannabis producer, is reportedly planning to acquire the U.S. company Reliva LLC is an all equity deal for about US$40 million. This acquisition is being seen as a huge positive for the company as marijuana legality has been increasing over the North American continent.
Reliva LLC sells products using a component named cannabidiol (CBD) which is a type of non-intoxicating form of cannabis. This acquisition has gained a lot of traction due to the market value of Reliva LLC. If the latter hits their financial targets, Aurora will be paying an additional US$45 million worth stock to Reliva LLC. Aurora is expecting the acquisition to be an addition to its surplus immediately, and expects profitability by the next fiscal year’s first quarter on an adjusted EBITDA basis.
Unlike some of its market competitors, Aurora has been hesitating to enter the United States. In choosing Reliva, however, the company cited its focus on regulatory compliance, its management team, as well as the company's links with trading partners and financial discipline and track records of growth and profitability.
However experts believe that CBD may not sustain in the US market given FDA’s particular concern over its effects. FDA claims to not have sufficient data on producing anything conclusive about its exact effects but FDA has compared CBD with other forms of intoxicating cannabis which produced many side effects.
Recently, the U.S. has also legalized hemp, but left the FDA to regulate CBD, which has naturally adopted a cautious approach. Presently the companies are prohibited to add CBD to beverages, food and other cosmetics products, and the FDA has been targeting companies that do the same.
Aurora’s cautious approach towards this deal comes as hardly a surprise given the FDA’s stance towards this product line, at the same point Aurora’s stock price has been on a ride this year, from reaching an all- time low to increasing by 33 percent overnight after this deal’s announcement. Marijuana supporters believe that an all country legalization is inevitable given the many positives of this breed, thus justifying that this new acquisition made by Aurora has the potential to make millions in the future. The public confidence in marijuana products is another reason why the stock value of many marijuana companies increased after this deal announcement.