Full Press Release Details
MATERIAL CHANGE REPORT
Aurora Cannabis Inc. ( Aurora or the Company )
500 - 10355 Jasper Avenue
Edmonton, Alberta T5J 1Y6
A news release with respect to the material change referred to in this report was disseminated through Canada Newswire on
May 28, 2020 and subsequently filed under the profile of the Company on SEDAR at www.sedar.com.
The Company has strategically entered the United States CBD market through the completion of the acquisition of all of the
outstanding membership units of Reliva, LLC ( Reliva ) in consideration for approximately US$40 million of common shares of Aurora ( Common Shares ) and potential earn out consideration of up to an additional
US$45 million payable in Common Shares, cash or a combination thereof (the Acquisition ). Reliva is a provider of hemp-derived CBD products in the United Sates. The Acquisition represents Aurora s entry into the United
States CBD market. In connection with the completion of the Acquisition the Company also entered into a Second Amendment to the First Amended and Restated Credit Agreement dated September 4, 2019, as amended by an amendment dated March 25,
2020 (the Credit Facility ).
Acquisition of Reliva LLC
On May 20, 2020, Aurora and Aurora USA Holdings Inc. ( Aurora USA ) entered into a purchase and sale
agreement with Reliva, Miguel Martin (as seller s representative) and the unitholders of Reliva (the Purchase Agreement ), pursuant to which Aurora agreed to acquire all of the outstanding units of Reliva.
On May 28, 2020, Aurora completed the Acquisition which represents the Company s initial expansion of its business
into the United States CBD market. On completion of the Acquisition, Aurora issued to the Reliva unitholders an aggregate of 2,480,810 Common Shares, at a deemed price of $15.71 per Common Share. Pursuant to the Purchase Agreement, Aurora agreed to
pay additional potential earn-out consideration of US$45 million in cash, Common Shares, or a combination thereof, on achievement of certain EBITDA targets by Reliva over the twelve month periods ending
December 31, 2020 and December 31, 2021. Upon completion of the Acquisition, the Reliva management team will remain in place with Miguel Martin continuing as president of Aurora USA and joining the executive leadership team of Aurora.
Reliva, based in Natick, Massachusetts, is a U.S. provider of hemp derived CBD products for consumers. Through partnerships
with wholesalers and retailers, including 8 of the 20 top convenience store chains, Reliva s products, which include CBD consumables such as drink mixes and gummies, as well as body lotions, lip balms, and other CBD products, are available in
over 20,000 retail stores in the United States.
The Acquisition of Reliva is not considered a significant
acquisition under National Instrument 51-102.
Material Terms of the Purchase Agreement
Purchase Consideration
The Purchase Agreement provides for the payment of the following consideration by Aurora to the Reliva unitholders:
The Company agreed to file, within one business day of the closing of the Acquisition, with applicable Canadian securities
regulators and with the Securities and Exchange Commission, a prospectus supplement (the Prospectus Supplement ) to its base shelf prospectus dated May 10, 2019 (the Base Prospectus ), to permit the resale of
the Common Shares by the former Reliva unitholders in the United States. The Company agreed to indemnify the former Reliva unitholders against certain liabilities and expenses and to contribute to payments that the Selling Shareholders may be
required to make in respect thereof that are directly or indirectly based on or resulting from the resale of the Common Shares by the former Reliva unitholders.
Risks Relating to the Acquisition
The Acquisition represents Aurora s first entrance to the United States CBD market, and as such poses a number of risks to
Aurora. If any of these risks occur, Aurora s business, results of operations or financial condition could be materially adversely affected. These risks include the following:
Aurora may be unable to realize the anticipated benefits of the Acquisition.
Aurora is acquiring Reliva to realize anticipated benefits of entering the U.S. CBD market. The anticipated
benefits are necessarily based on projections and assumptions. Aurora may not realize the anticipated benefits to the extent, or in the time frame, anticipated, or at all. If Aurora does not realize the anticipated benefits, its growth strategy and
future profitability could be negatively affected. Aurora s ability to realize the benefits of the Acquisition will depend in part on the timely integration of organizations, operations, procedures, policies and technologies, as well as the
harmonization of differences in the business cultures of the two companies and the retention of key personnel. The challenges involved in this integration also include preserving Reliva s customer, channel partner, supplier and other important
relationships; minimizing the diversion of management attention from ongoing business concerns; assuring that the internal controls over financial reporting of the combined company are effective; and coordinating operations, relationships and
facilities in a jurisdiction that Aurora has not previously operated in. Aurora s failure to meet the challenges involved in the integration of Reliva s business and operations or to otherwise realize the anticipated benefits of the
Acquisition may adversely affect the future results of Aurora s U.S. business, which could have a material adverse effect on the business, financial condition and results of operations of the Company more generally.
Aurora may fail to comply with the rapidly developing regulatory environment in the United States.
Aurora will be operating in a new jurisdiction in which the regulatory environment related to the manufacture, marketing and
sale of CBD products is rapidly developing and Aurora may not always succeed in complying fully with applicable regulatory requirements. Aurora s operations in the United States will be subject to various laws, regulations and guidelines by
governmental authorities relating to the manufacture, marketing and sale of CBD products derived from industrial hemp, including, the U.S. Food and Drug Administration (the FDA ), the U.S. Drug Enforcement
Administration (the DEA ) and the U.S. Federal Trade Commission (the FTC ), and similar state regulators in each of the states in which we operate or our products and marketed and sold. As used in this document,
industrial hemp means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a
tetrahydrocannabinol ( THC ) concentration of not more than 0.3% on a dry weight basis. Achievement of the Company s business objectives in the United States is contingent, in part, upon compliance with regulatory requirements
enacted by federal and state regulatory authorities related to our business and manufacturing, marketing and selling CBD products in the United States. The failure to comply with, or enforcement by, these regulatory regimes could have a material
adverse effect on Aurora s U.S. business and could have a material adverse effect on the business, financial condition and results of operations of the Company more generally.
There is significant legal and regulatory uncertainty in the United States regarding
the manufacturing, marketing and sale of CBD products and the interpretation or application of, or changes to, laws and regulations related to the manufacturing, marketing and sale of CBD products may have a material adverse effect on the
Company s U.S. business.
On December 20, 2018, the U.S. Agriculture Improvement Act of 2018 (the
2018 Farm Bill ) came into effect in the United States. The 2018 Farm Bill, among other things, removed what is often referred to as industrial hemp from the U.S. Controlled Substances Act and amended the U.S.
Agricultural Marketing Act of 1946 to permit the production and sale of industrial hemp in the United States. The 2018 Farm Bill tasked the U.S. Department of Agriculture (the USDA ) with promulgating regulations in relation to the
cultivation and production of industrial hemp. The 2018 Farm Bill also directed the USDA to promulgate federal regulations that would apply to the production of industrial hemp in every state which does not put forth a state industrial hemp plan for
approval by the USDA. The USDA issued an interim final rule in October 2019. Various states are in the process of applying to the USDA for approval of their industrial hemp production regulations and certain state plans have been approved by the
USDA. On February 27, 2020, the USDA announced the delay of certain requirements under its interim final rule, including the requirement for labs to be registered by the DEA and the requirement that producers use a DEA-registered reverse distributor or law enforcement to dispose of non-compliant plants under certain circumstances. The 2018 Farm Bill provides that its provisions do not
preempt or limit state laws that regulate the production of industrial hemp. Accordingly, some states may choose to restrict or prohibit some or all industrial hemp production or sales within the state and variances in states laws and
regulations on industrial hemp are likely to persist. Further, each state has discretion to develop and implement its own laws and regulations governing the manufacturing, marketing, labeling, and sale of industrial hemp products, which has created
a patchwork of different regulatory schemes applicable to such products in the various states.
Under the 2018 Farm Bill,
the FDA has retained authority over the U.S. Federal Food, Drug, and Cosmetic Act (the FFDCA )-regulated products (e.g., drugs (human and animal), food (human and animal), dietary supplements and cosmetics) containing industrial
hemp and ingredients derived from industrial hemp, including CBD. The FDA has taken the position that CBD is prohibited from use as an ingredient in food and dietary supplements. This position is based on the FDA s interpretation of the drug
exclusion rule in the FFDCA. The drug exclusion rules provides that a substance that has been approved and/or has been subject to substantial clinical investigations as a drug may not be used in a food or dietary supplement, unless the substance was
first marketed in a food or dietary supplement prior to the initiation of substantial clinical investigations of the substance as a drug. The FDA s position is that CBD was not marketed in a food or dietary supplement prior to the time CBD was
investigated and approved as a drug (despite the historic use of hemp as consumable product) and, therefore, CBD may not be used as an ingredient in food and dietary supplements.
To date, despite public statements, the FDA has not issued regulations
regarding CBD as an ingredient in food and dietary supplements or taken any enforcement action in the courts asserting a violation of the U.S. Federal Food Drug & Cosmetic Act with respect to the manufacturing, marketing and sale of CBD
products. However, the FDA has issued several Warning Letters to companies that have made unsubstantiated claims about their CBD products being able to treat medical conditions. Some of these letters were
co-signed with the FTC and cited the companies for making health and other claims about the efficacy of CBD that were not substantiated by competent and reliable scientific evidence.
Until the FDA formally adopts regulations with respect to CBD products, there is a risk that the FDA could take action against
Aurora s CBD ingestible products sold in the United States, which could include Warning Letters, enforcement actions arising from civil, administrative or other proceedings, fines, penalties, administrative sanctions, settlements,
injunctions, product recalls and/or seizures. Moreover, states also have regulatory authority through their own food, drug and cosmetic safety laws and we are subject to similar risks in each state in which Aurora s CBD ingestible products are
manufactured, marketed, sold, including enforcement actions arising from civil, administrative or other proceedings, fines, penalties, administrative sanctions, settlements, injunctions, product recalls and/or seizures. Any of these actions by
federal or state regulators against Aurora and Aurora s CBD ingestible products in the United States would have a material adverse effect on the Company s U.S. business and could have a material adverse effect on the business, financial
condition and results of operations of the Company more generally.
The FDA and state regulatory authorities could seek to
regulate topical products that contain CBD in the United States on the basis that they are being used to treat, mitigate or prevent disease or for use in affecting the structure or any function of the body. For example, the FDA has sometimes
asserted that a product qualifies as a drug based solely on the presence of an ingredient widely understood to have drug effects, even in the absence of express claims about them. Consequently, even though we do not make any health or other claims
about any of CBD products sold in the United States, topical or ingestible, the FDA or a state regulator could still assert that the products are intended for use as drugs. Ultimately, if the FDA or a state regulator asserts its authority over our
topical products, and we cannot or elect not to comply with the onerous regulatory requirements, we could be prevented from producing, marketing and selling topical products containing CBD in the United States. Likewise, if states enforce or adopt
regulatory interpretations or restrictions that limit our ability to market our topical products containing CBD in such states it could have a material adverse effect on our U.S. business and could have a material adverse effect on our business,
financial condition and results of operations more generally.
Aurora may be required to obtain additional licenses, authorizations,
approvals and permits in connection with our U.S. business.
Aurora may be required to obtain and maintain certain
U.S. federal or state permits, licenses and approvals in the United States relating to the manufacture, marketing and sale of CBD products. Aurora may be unable to obtain or maintain any necessary licenses, permits or approvals. To the extent such
permits and approvals are required and not obtained, Aurora may be prevented from operating and/or expanding our U.S. business, which would have a material adverse effect on Aurora s U.S. business and could have a material adverse effect on the
business, financial condition and results of operations of the Company more generally.
Aurora is subject to a variety of regulatory limitations related to marketing and
advertising of our CBD products.
In the U.S., advertising is subject to regulation by the FTC under the Federal
Trade Commission Act as well as the FDA under the FFDCA, including as amended by the U.S. Dietary Supplement Health and Education Act of 1994, and by similar state and local regulation. In recent years, the FTC, the FDA and state regulators have
initiated numerous investigations of food and dietary supplement products both because of their CBD content and based on allegedly deceptive or misleading marketing claims and have, on occasion, issued Warning Letters due to such claims.
Some U.S. states also permit content, advertising and labeling laws to be enforced by state attorneys general, who may seek civil and criminal penalties, relief for consumers, class action certifications, class wide damages and recalls of products
sold by Aurora. There has also been a recent increase in private litigation that seeks, among other things, relief for consumers, class action certifications, class wide damages and recalls of products. Any actions against Aurora by governmental
authorities or private litigants would have a material adverse effect on Aurora s U.S. business and could have a material adverse effect on the business, financial condition and results of operations of the Company more generally.
Aurora s participation in the industrial hemp industry could subject Aurora to unexpected enforcement action.