Why Aurora Cannabis Stock Jumped 10% on Wednesday

Aurora Cannabis (TSX:ACB)(NYSE:ACB) stock jumped 10% on Wednesday, as the company announced it would acquire TerraFarma.

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Aurora Cannabis (TSX:ACB)(NYSE:ACB) shares jumped 10% on Wednesday. The cannabis company announced it would acquire TerraFarma, the parent company of Thrive Cannabis.

What happened?

Aurora Cannabis stock jumped 10% before share came back down to earth, up about 2% as of writing. The short-lived increase to $5.08 per share came as the cannabis stock announced it would be acquiring TerraFarma. The company is the parent of Thrive Cannabis. It’s being dubbed a part of Aurora’s “premium pot strategy,” the company said in a statement.

“It’s vital that any transaction we make, now or in the future, be strategic, accretive, and centred around adding exceptional talent and brands that align with our path to profitability,” said Miguel Martin, chief executive officer of Aurora Cannabis stock. “We see a unique opportunity to leverage [Thrive’s] expertise to deliver near and long-term benefits for both our recreational and medical markets.”

So what?

Aurora Cannabis will acquire the company for $38 million in cash and Aurora shares. However, that could come down to $20 million for Thrive in shares, cash or both should it reach revenue targets over the next two years. Now, Aurora Cannabis stock hopes this helps it reach profitability by the first half of 2023.

The biggest change that Aurora Cannabis stock made is actually giving Thrive management a head role in operations, including Aurora’s recreational business. This is something that in the past, Aurora management simply has been unwilling to do. The company remains without a partnership, unlike many of its larger peers. This led to share devaluation, as the company paid for acquisitions.

Now what?

It looks like investors are still unsure of what to think. Sure, Thrive has a solid track record that could bring Aurora Cannabis stock towards profitability. But it also is a massive purchase that Aurora probably can’t afford right now. That being said, the cannabis industry remains a discount that’s hard to pass up, and opportunities won’t last forever.

Aurora Cannabis stock hasn’t purchased anything since Reliva in May 2020. Over the last few years has seen its peers merge and become massive corporations. Meanwhile, investors took the opportunity to sell their Aurora shares rather than invest, seeing perhaps a short period of time when there was a boost in price.

Only time will tell whether this proves to be the right move or not.

Shares of Aurora Cannabis stock were up 2% as of writing and 59% in the last year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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