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An employee tends to marijuana plants at the Aurora Cannabis Inc. facility in Edmonton, Alberta, Canada, on Tuesday, March 6, 2018.

Jason Franson | Bloomberg | Getty Images

Aurora Cannabis has agreed to buy U.S.-based CBD company Reliva, giving the struggling Canadian company a business foothold in America.

Shares of Aurora closed off nearly 13% ahead of Wednesday’s afternoon announcement. The stock surged higher in after-hours trading.

However, in the past 12 months, Aurora has lost nearly 90% of its stock market value as of Wednesday’s close.

“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.”

Reliva stakeholders will receive $40 million in Aurora shares, which had surged more than 120% since the company last week reported a narrower quarter-over-quarter loss on May 14. The deal is expected to close next month.

In February, Terry Booth retired as CEO, and Aurora announced 500 layoffs and a write down of approximately $700 million in product and equipment.

Singer said 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 currently sold in Circle K convenience stores and other retail locations around the US.

Miguel Martin, CEO of Reliva, told CNBC the deal will give his Reliva brand increased scale and international exposure while it maintains pricing to capitalize on the U.S. market during the Covid-19 pandemic.

“All of our products retail for less than $20,” Martin said, “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.”

Cannabis sales in Canada have not reached expectations since adult recreational-use legalization in October 2018.

But according to the Brightfield Group research firm, CBD sales are projected to rise to $24 billion in U.S. retail sales by 2025. CBD stands for cannabidiol, which is one of several chemical compounds found in cannabis and hemp plants. CBD is not psychoactive like THC, or tetrahydrocannabinol, and it doesn’t give users a buzz.

Singer believes the acquisition will also resonate with investors who may have lost confidence in Aurora and cannabis stocks.

“Our belief in the cannabis industry globally hasn’t changed,” he said. “It’s just the path getting there is very different.”

However, cannabis analyst Bill Kirk at MKM Partners told CNBC the deal may have headwinds due to a lack of clarity on edible CBD from the U.S. Food and Drug Administration and declining prices of CBD in the U.S.

“U.S. CBD has been under a lot of commoditized pressure,” said Kirk, adding the deal may not excite shareholders. “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.”

For his part, Singer said, “Our belief in the cannabis industry globally hasn’t changed.” He added, “It’s just the path getting there is very different.”

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