Consumer Products

Aurora Cannabis Stock Lags After Deal for Reliva

Just a little more than a week after announcing an agreement to acquire a U.S.-based CBD company, Aurora Cannabis Inc. (NYSE: ACB) closed the deal.

The Canadian cannabis company based in Edmonton, Alberta, said Thursday that it had paid $40 million in Aurora common shares for Reliva LLC, which sells hemp-derived CBD products in the United States.

If Reliva achieves specific financial targets over the next two years, a potential additional payout of up to $45 million may be made, in either cash or stock.

Aurora executive chairman and interim CEO Michael Singer noted that the deal closed ahead of schedule.

“I would like to officially welcome Miguel Martin and his team to Aurora, and look forward to increasing Aurora’s operating scale, international reach, and product and brand diversity while in parallel, we remain focused on delivering adjusted EBITDA profitability in Canada for the benefit of all shareholders,” Singer said.

Miguel Martin, chief executive of Reliva said, “We believe this partnership provides the opportunity for significant growth in the United States and internationally, and we’re excited to get to work.”

Drop in Share Price

The market was not as optimistic as the executives. On Thursday, Aurora’s share price closed at $15.34. At the close on Friday, it had dropped by about 8% to $14.08. On Monday, it was relatively stable at $14.10.

The drop in Aurora’s stock price may have been less a function of the Reliva deal and more a reaction to a sell-off Friday and Monday in the Canadian marijuana company Canopy Growth Corp. (NYSE: CGC).

Canopy Growth, based in Smiths Falls, Ontario, reported disappointing fourth-quarter results Friday as the company withdrew near-term financial targets, leading analysts at three firms to downgrade their outlook on the company.

It had a fiscal fourth-quarter net loss of C$1.3 billion (US$946.2 million), or C$3.72 a share, vs. a loss of C$379.1 million, or C$1.10 a share, in the comparable year-earlier period. Analysts polled by FactSet had been expecting a loss of 44 cents a share.

Sales rose to C$115.1 million from C$106.5 million a year ago, above analysts’ forecasts.

After dropping more than 20% following the release Friday, shares were down another 5% Monday.

Canopy Growth’s results may have had some residual effects on other cannabis stocks.

But Cantor Fitzgerald analyst Pablo Zuanic wrote in a note to clients that he was maintaining Overweight (Buy) ratings on Aurora Cannabis and another marijuana stock, Aphira (NYSE: APHA), with price targets of CA$27.00 ($19.71) and CA$9.55 ($6.97), respectively.

Aurora’s Strong Earnings Report

Last month, Aurora reported a net loss per share of C$1.37 on revenues of C$76.4 million for the fiscal third quarter 2020. Last year, the company posted a loss of C$1.89 per share on revenue of C$66.6 million. Shares surged on that news, too.

Analysts had forecast a net loss per share of C$0.04 and revenues of C$46.9 million. At today’s conversion rate, one Canadian dollar is equal to about $0.71 American.

The company’s net loss totaled C$137.4 million, and adjusted EBITDA (earnings before interest, taxes, depreciation, amortization) came in at a loss of C$50.9 million. Adjustments included a charge of C$10.9 million for share-based compensation and a gain of C$15.4 million in the fair value of inventory. Prior to a reverse stock split earlier this month, Aurora had 1.3 billion shares outstanding, yielding a per-share adjusted loss of about C$0.04.

Aurora’s adjusted gross margin on cannabis was 54% in the quarter, and the company is targeting an annual margin greater than 50%. Selling, general and administrative expenses dropped by about 25% to $C75.1 million. The company said it was on track to meet a target of C$40 million to C$45 million by the end of the fourth fiscal quarter.

Earlier this year, Aurora cut 500 jobs and unveiled a sweeping financial revitalization plan. It included $750 million in write-downs and asset impairment charges, and a $100 million reduction in capex spending. Co-founder and chief executive Terry Booth stepped down in February.

Aurora’s acquisition of Reliva is the second major CBD deal in recent months. In March, Charlotte’s Web said it had agreed to pay $69 million for Abacus Health Products, which makes the CBDMedic brand promoted by NFL tight end Rob Gronkowski.