Aurora Cannabis to buy U.S. CBD company Reliva

Aurora Cannabis Interim CEO Michael Singer and Reliva CEO Miguel Martin join Yahoo Finance’s Zack Guzman to discuss Aurora’s acquisition of Reliva, and more.

Video Transcript

ZACK GUZMAN: We're also watching shares of Aurora Cannabis. The Canadian cannabis giant right now off by about 2 and 1/2%, giving back a bit of the gains that we saw yesterday as it popped nearly 30%-- actually, pretty much about 30%-- off the news that it would be buying a US CBD company, Reliva. That news making headlines out there as investors have long awaited the US entry of Aurora into the CBD market. And, of course, a lot of question marks around whether or not that deal will have an immediate impact on the cannabis company.

Today, the stock was downgraded by Jefferies saying that the stock move was not justifiable in the deal proving out to be that impactful, but who knows? I'll tell you who knows, the people who are going to be chatting with right now. That would be the Adam CEO of Aurora Cannabis as well as the executive chairman, Michael Singer. Also we're joined by the CEO of Reliva. Miguel Martin joins us right now. And, guys, I appreciate you taking the time to chat with us about this deal.

Michael, I'll start with you because obviously there's a lot of different options here when you think about entering the US CBD market. Of course, you guys landed on Reliva in the press release. You noted that it's number one in topicals and number two overall in terms of market share according to IRI. When you look outside of those metrics measured by IRI, though, and the C stores, which is obviously a big footprint here for Reliva, it might not necessarily be that big of a player. So why Reliva, and why time it right now when there's still a lot of question marks in the CBD market?

MICHAEL SINGER: Certainly. So thanks for having us, Zack. So I think you highlighted a couple of key things. I think, you know, we feel very excited about this acquisition, and we're picking up a phenomenal, you know, company in Reliva and a great management team, a US-based CBD wellness company.

You highlighted the retail locations but also the strong relationships that Miguel and the Reliva team have with leading wholesalers and distributors, and they have a global reach, which is obviously consistent with our global footprint.

Taking a step back thinking about what this does for Aurora's shareholders, you know, this is a responsible and strategic entry for us into the US market. It delivers on our key reset plan-- the key aspects of our reset plan that we announced-- you know, that we updated the market on last week.

So we're very excited about this, and we have immediate access to the world's largest cannabinoid market, and that's so important. And Reliva and Miguel have created a real, you know, tremendous cannabinoid platform that we feel we want to leverage.

The Reliva of story as an asset-light model. It's accretive to Aurora today. It's profitable. We're bringing in this EBITDA-generating asset with no debt to the Aurora-- you know, to the Aurora story.

And maybe most importantly, we have a mature and an experienced leadership team in Miguel and the Reliva group who have taken a compliance-based approach to their business, and we're so excited. That's a very similar philosophy to that of Aurora, and we're very excited to be-- you know, to have Miguel and the Reliva team as part of the Aurora family. So a ' exciting day for Aurora and its shareholders.

ZACK GUZMAN: Yeah, Miguel, I mean, you hear all that, and you're going to be staying on as president of Aurora USA and operating the combined company here. And when you look at it, I mean, obviously you guys have stressed your convenience-store footprint, I guess. But overall, it only makes up about 3.9% of the overall market. Much more levered in the CBD space to e-commerce, which makes up 35%. 14% coming from CBD specialty retailers. So, I mean, what are the plans and the strategies to really drive the brand awareness out there? Much higher awareness for some of the competitors here in the US for a Charlotte's Web or a Green Roads when you ask them. What are the plans to expand out of convenience stores, and can that be done relatively easily in the short term?

MIGUEL MARTIN: Well, Zack, thank you for that question. You know, as Michael mentioned, you know, I've got 20 years in regulated-product experience, and the history with regulated products has been that they typically end up in regulated stores, whether that be stores that sell tobacco or alcohol, which today C stores are the preeminent.

We also have distribution in supermarket, grocery, and drug. And with the heft of what Aurora brings to it, it's just a perfect partnership. Aurora's focus on compliance, deep science, as well as innovative products allows Reliva to responsibly and in a real compliance-driven way expand our footprint going forward.

And so we had four states pass comprehensive legislation this year-- Texas, Florida, Ohio, and Virginia. And so the expansion of CBD will be there. We're really proud of what we've done with convenience stores. It's a much less crowded space in brick-and-mortar than it is, say, in e-com. And I think as we, you know, see the new normal, as people go to find tobacco and alcohol in brick-and-mortar stores, they'll also find our products and Aurora products.

ZACK GUZMAN: Yeah, Michael, let's talk about that competition Miguel is mentioning there because, of course, your Canadian competitor-- you guys are compared to them often-- Canopy Growth had already expanded into the US with First and Free, their CBD line.

When you look at the space overall, I mean, how much growth are you actually attributing? You note how big the CBD market is in the US, expected to be $25 billion roughly by 2025. But obviously it's a very competitive space. So, I mean, how much, realistically, are you expecting it to add to growth in reaching your guys' goal of adjusted EBITDA profitability by the first quarter of fiscal 2021?

MICHAEL SINGER: Well, Zack, it's a good question. I think for us, the Reliva story is actually incremental to the Aurora, you know, path to profitability, and that's important. We, as part of our reset plan, we announced a priority to sort of, you know, rationalize our business and drive the Aurora business in Canada and internationally ex-US to profitability and sustained profitability.

Reliva business today is profitable. So it's incremental to that strategy for Aurora. And so most importantly, it's not going to distract the Aurora-- the senior team at Aurora to deliver on its key objective of ensuring that we drive profitability into our business, and so we're very excited about that.

You noted a crowded space. It is. I think the way Miguel just described the business, a compliance-based approach, is a differentiating factor that was very, very important to us as we sort of looked at the landscape and identified which companies we thought were going to be complementary to the Aurora business. And we believe it's incredibly well-positioned in the US, not just for the way we see the regs changing in the US but to really take advantage of a global growth opportunity by virtue of those relationships I highlighted earlier, you know, with the leading wholesalers and distributors in the US. We're very excited about the combination of these two companies today.

ZACK GUZMAN: Yeah, you talk about the regulations changing as well. We got an update from Colorado Representative Ed Perlmutter who is talking about his Safe Banking Act, which would obviously shift some of these businesses that are more marijuana focused as opposed to CBD focused to getting banking.

I'm curious what your guys' timeline looks like then in terms of maybe loosening of those restrictions in the cannabis space. Miguel, I assume you being the US-focused person here at Aurora now would have more insight on that front, but how do you see the regulatory environment changing in the short term since the FDA has kind of dragged its feet when it comes to CBD?

MIGUEL MARTIN: So, you know, Zack, I would position it this way. Today, you know, THC-bearing products over 0.3% aren't available in the US, and so we're really focused on the cannabinoid, the non-THC products, and there's tremendous opportunity.

You know, as Michael has talked quite well about their gen-two products, which they feature THC, we'll be able to bring those to the US. So the expansion of the states and the ability to sell, you know, what we call the minor cannabinoids, non-THC bearing, today is really the opportunity.

And you mentioned $25 billion. And whether that number is 20 or 25, it's growing so quickly. So it's the largest profit pool in the world today, the US. Michael mentioned our trade partners. Many of them have businesses all around the world, so we can leverage that as well. But today focusing on CBD and the other cannabinoids, non-THC bearing. We think there's planning to focus on. At the time in which the other products are there, it will be a wonderful synergy for both Aurora as well as the Aurora brands.

ZACK GUZMAN: Well, it's also interesting because, you know, the deal comes amid a global pandemic. You know, there's a lot going on right now, but you guys got this done. Michael, as executive chair, you're also looking for a CEO to come in here as well. How has the CEO search been when you can't really do all that much in person? Or if you can, you've got a lot to worry about. What's the timeline on the CEO search? Any updates you can give on that front?

MICHAEL SINGER: So I think as you-- we think about our prepared remarks, when we announced our earnings update last week we said the process is going well. It's advancing quite nicely. We feel confident that we're going to be able to fill that role with a very qualified candidate.

You're right. The COVID environment adds a level of, you know, challenge that nobody anticipated, but it's not slowing us down. We actually feel very optimistic about the process that we're running and very confident that the candidates we have in the pipeline are going to be incredibly important for our business going forward. So it's not deterring us in any way.

ZACK GUZMAN: All right, there you go, the update from the two gentlemen at the front of this deal in the cannabis phase. Michael Singer, Aurora Cannabis executive chair, as well as Miguel Martin, Reliva CEO now turned president of Aurora USA, appreciate you guys taking the time to chat with us today.

MIGUEL MARTIN: Thank you so much.

MICHAEL SINGER: Thank you, Zack.