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Why Aurora Cannabis Stock Is Rocketing Higher Today

By Joe Tenebruso - May 21, 2020 at 3:35PM

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The marijuana leader struck a blockbuster deal to enter a massive new market.

What happened

Shares of Aurora Cannabis (ACB 10.67%) soared on Thursday after the marijuana producer said it reached an agreement to acquire a leading U.S.-based CBD brand. 

As of 2:50 p.m. EDT, Aurora's stock was up more than 28%.

So what 

After the market closed on Wednesday, Aurora announced that it struck a deal to acquire Reliva LLC, a popular retail cannabidiol (CBD) brand in the U.S.

Unlike marijuana, CBD doesn't get people high. Yet many people use CBD products for their perceived health benefits. It's a rapidly growing market -- one that could generate $24 billion in retail sales by 2025 in the U.S. alone, according to the Brightfield Group. 

Aurora has had its sights set on the U.S. CBD industry for a long time and is seeking to acquire Reliva to gain a beachhead into this potentially massive market. As a leading seller of hemp-derived CBD products -- its wares can be purchased in over 20,000 U.S. retail locations -- Reliva stands to profit handsomely from the industry's growth.

A U.S. style flag with a cannabis leaf in place of the stars

Shares of Aurora Cannabis surged on Thursday after the marijuana leader made an aggressive move into the U.S. CBD market. Image source: Getty Images.

As part of the agreement, Reliva's members will receive $40 million worth of Aurora's stock -- and potentially an additional $45 million in stock, cash, or a combination thereof if the company can achieve certain financial targets over the coming two years.

Now what

Aurora expects the deal to immediately improve its profitability, as Reliva already produces positive earnings before interest, taxes, depreciation, and amortization (EBITDA), which is a goal Aurora hopes to achieve by fiscal 2021.

Aurora estimates that the transaction will close by June, pending shareholder and regulatory approval.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Aurora Cannabis Stock Quote
Aurora Cannabis
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