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Doubling Back: Canadian cannabis producer Aurora Cannabis announced it will acquire U.S. CBD product manufacturer Reliva for $40 million (~3x revenue) in an all-stock transaction. The deal will also include up to $45 million in earnouts based on performance over the next two years and is expected to be accretive to Aurora on an Adjusted EBITDA basis. Notably, Reliva has strong retail distribution, reaching over 20,000 locations through partnerships with the three largest wholesale distributors. 
Why It Matters: Well, Aurora’s breakup with hemp didn’t last long. But the differences between their divested assets and this acquisition couldn’t be more significant. Aurora is trading from heavy cultivation assets in Canada to Reliva’s asset-light model, where it doesn’t own farms and outsources its manufacturing. Strategically, the big prizes are a U.S. presence, as well as Reliva’s killer distribution network. In a space as competitive as branded CBD products, product differentiation is tough, making distribution even more critical. But, despite investors’ initial enthusiasm, the deal might not be a home run - it’s difficult to see the synergies with Aurora’s traditional cannabis business, COVID may make that in-person footprint less meaningful, and Reliva’s brand proposition seems to be “we’re cheap”. But, hey, at the very least, buying a U.S. presence for 3x revenue was probably a better deal than Lord Jones was… 


Boom Goes The Black Market: A massive explosion rocked a downtown Los Angeles warehouse last week, damaging multiple buildings and injuring 12 firefighters. Smoke Tokes, an unlicensed wholesale supplier of vape oil, did business in the warehouse, and previously faced a similar fire in 2016 at a different address. While the cause of the explosion remains to be determined via an ongoing criminal investigation, it’s likely that Smoke Tokes was supplying local ‘hash blasters,’ who buy volatile gases like butane found at the warehouse.
Why It Matters: We’ve noted it before: the biggest competitor to canna-businesses is the black market. For those accustomed to buying mids from their local dealer, this might seem like an easy hurdle but, make no mistake, the illegal market is an incredibly sophisticated animal that can continually adjust to benefit from changing conditions. This is especially true in California, where a long established black market has players that can both stand up highly competitive operations at a fraction of regulated businesses’ costs and also act as the customer of last resort for legal companies struggling to get by. It’s sometimes easy to forget that black market operators are optimizing for cost and legal evasion, not the consumer’s or general public’s safety. And, when they’re filling  a gap in the supply chain that’s pretty dangerous even when regulated, it’s sadly not surprising that disasters will occur. But, absent increased enforcement or an regulatory environment that better supports legal businesses, it’s not clear how to stop them.  


Silver Lining Playbook: COVID-19 is wreaking havoc across the world, as communities still face full-fledged lockdowns and the U.S. reports unprecedented job losses. But there might be a potential silver lining for cannabis. Farhaj Mayan is the CEO of Kanna, a fully integrated training and hiring platform for the cannabis industry. He shared his recent thoughts on how COVID-19 is catalyzing changes across all aspects of cannabis business operations.

Quick Hits

Research Rips

👍 There Isn’t Sufficient Evidence For Claims Of Increased Occupational Injury Risk 
👍 Cannabis Is An Effective Treatment For Fibromyalgia
👎 Cannabis Does Have Mental Health Risks To Be Aware Of
👎 Cannabis Use Increases Risks Around Psychosis
Cannabis Consumption Among Therapeutic Users May Alter Driving Behavior
Different Genders Have Different Subjective Levels Of Cannabis Cravings

State-by-State
State Legalization Watch: 0/5 

ICYMI
Recapping some of our best and most recent long reads

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