Aurora Cannabis (ACB) - Get Report shares jumped on Thursday after the Canadian company purchased U.S.-based cannabidiol maker Reliva for $40 million and analysts at Cantor Fitzgerald published a bullish note on the acquisition.
Analysts at the firm reiterated their overweight rating on the stock while increasing their price target to C$27 a share from C$22.
In recent trading Aurora's U.S. shares were up 29% to $16.46. (C$22.97)
The firm said the deal shows that Aurora is ready to "chew and walk at the same time."
"Certainly, the consumer CBD industry faces temporary challenges in the U.S., but the industry has long-term upside, valuations have pulled back, and we think Reliva has a unique channel and price positioning that allowed it to perform quite well pre-Covid," analyst Pablo Zuanic said.
Zuanic also identifies other benefits from the deal for Aurora, including the strengthening of its senior-management bench and cannabis-producer connections through Reliva.
Reliva generated sales of $14 million in the 12 months ended February, selling mostly through brick-and-mortar channels as its online presence is limited.
The company has a foothold in the U.S., however, with its product appearing in 22,000 stores nationwide, while the country's three-largest cannabis wholesalers (McLane, Core-Mark, and Eby-Brown) all have distribution deals with the brand.
Aurora Cannabis more than tripled between May 14, when it reported its quarterly earnings, and May 18, but that recent runup does not scare away Cantor analysts.
"ACB has made great strides with its 'reset' and is on track to deliver on its cash flow and Ebitda targets," Zuanic said.
And apparently the company "will make little use of the new equity facility of US$250 million (to which we attributed the bulk of the 30-day weakness in the stock into the 5/14 print)."