Shares of Canadian marijuana producer Aurora Cannabis were soaring as Wall Street learned that the company had made a deal to enter the U.S. market.
Aurora Cannabis has agreed to buy U.S.-based CBD company Reliva, giving the company a business foothold in the country.
Shares soared nearly 13% ahead of the news and continued to soar in extended hours on Wednesday.
“It’s immediate access into the world’s largest cannabinoid market,” Aurora Executive Chairman and interim CEO Michael Singer told CNBC’s Frank Holland. “I think the Reliva acquisition is a responsible strategic entry into the U.S. market; and for Aurora, delivers a key aspect of our reset plan.”
As part of the deal, Reliva stakeholders will receive $40 million in Aurora shares. The deal is expected to close next month.
According to Singer, the deal complements the near-term goal of Aurora reaching profitability in the next fiscal year and longer term goal of entering the U.S. market for CBD and cannabis.
“It’s creative and profitable,” Singer said, adding that Reliva has no debt. “Reliva [also] has access to 20,000 retail locations and even more important strong relationships with the leading wholesalers and distributors in the U.S.”
Reliva is sold in Circle K convenience stores and other retail locations around the nation.
Miguel Martin, CEO of Reliva, told CNBC, “All of our products retail for less than $20. When you are dealing with mass retail it is important that you provide that type of spectrum of pricing particularly in this market where affordability of value are particularly important.”
Marijuana analyst Bill Kirk of MKM Partners told CNBC that the deal may have headwinds. He said, “U.S. CBD has been under a lot of commoditized pressure. Aurora investors are sick of the equity dilutions they are experiencing. The company has done deals using their equity and Aurora has had to raise equity to pay expenses.”
Singer added, “Our belief in the cannabis industry globally hasn’t changed. It’s just the path getting there is very different.”