Exclusive: Boris Jordan Explains the Economics Behind Curaleaf’s Aurora Bid

Curaleaf approached Aurora Cannabis privately in June and again in July before going public on August 11 with a proposed takeover offer initially valued at $4 per share. Aurora responded by forming a special committee to review the bid and disputed Curaleaf’s account of the earlier negotiations.

With the offer now on the table, the central question is what Curaleaf sees in Aurora that makes the acquisition worth pursuing.

To understand the economics behind the bid, IgniteIt sat down with Curaleaf Chairman and CEO Boris Jordan for an exclusive interview covering Aurora’s cultivation assets, genetics, European distribution, premium medical cannabis, production efficiency, margins, vertical integration and the scale Curaleaf believes it needs internationally.

“It’s going to get us to about $490 million of revenue with a fully vertical chain,” Jordan said about the potential acquisition.

What Curaleaf Thinks It Can Do With Aurora

The first piece is operational.

Jordan argues that Curaleaf could get considerably more out of Aurora’s existing business without fundamentally changing what makes the company attractive.

“We would change quite a few things at Aurora,” Jordan said.

He pointed first to genetics. Curaleaf would introduce genetics developed in the U.S. into Aurora’s cultivation operation while combining the companies’ respective genetics teams. It would also push Aurora products through markets where Curaleaf already has distribution infrastructure, including the UK, as well as other international markets where Aurora has less presence.

Then there are the facilities themselves.

“We would immediately make their facilities more efficient,” he said, arguing Curaleaf could substantially increase capacity from comparable cultivation space.

He also sees room in SG&A. Jordan said Aurora’s SG&A runs around 50% of revenue compared with approximately 30% at Curaleaf, another area where he believes a combination could improve profitability.

When asked where the largest savings would actually come from, however, Jordan did not point primarily to layoffs.

Instead, he returned to cultivation, marketing and distribution.

“We’re more focused on the marketing and distribution costs and the operational costs of their business in terms of making their grows a lot more efficient than they are today,” he said.

Greenhouses Can Cut Costs. Indoor Still Commands the Premium.

The next piece is the product itself.

Aurora has operations in Canada, but Jordan made clear that Curaleaf is primarily looking beyond the Canadian domestic market. Curaleaf does not currently have a significant presence there outside a limited medical business, and Jordan said the company generally earns better margins outside Canada.

The attraction is what Aurora’s Canadian facilities can produce for international markets.

Asked what makes Aurora a fit for Curaleaf’s premium strategy in Europe, Jordan reduced it to two factors.

“It’s purely two things. It’s just genetics and the fact that they grow indoors.”

Jordan argues that indoor cultivation gives Aurora an important position in premium flower compared with Canadian producers that rely more heavily on greenhouse production.

“Most of the Canadian operators grow in greenhouses, and you cannot get the same quality product in a greenhouse that you can in indoor,” he said.

Curaleaf has experience with indoor, greenhouse, hoop-house and outdoor production in the United States. Jordan said that experience has convinced the company that Aurora’s indoor infrastructure can support the quality Curaleaf wants for the upper end of its international portfolio.

But he does not want to leave those facilities operating exactly as they do today.

Jordan said Curaleaf estimates Aurora currently produces approximately 80 grams per square foot. Some Curaleaf facilities, he said, are approaching 140 grams per square foot.

The opportunity, as he sees it, is to put Curaleaf genetics into Aurora’s indoor infrastructure and then apply cultivation practices Curaleaf believes can increase output.

“By taking that premium product, our genetics, putting them into their facilities and increasing the output, it’s just a very, very powerful combination,” Jordan said.

Curaleaf Has Genetics It Wants to Take International

Jordan was also careful not to dismiss Aurora’s existing genetics. “They have very good genetics,” he said. The argument is instead that the two libraries could complement each other.

Curaleaf has accumulated a large U.S. genetics portfolio, including through its acquisition of California-based Dark Heart Nurseries. Jordan said Curaleaf has now received permission to move U.S. genetics into Canada, opening another route to international markets.

“We want to take our genetics team, put it together with their genetics team,” Jordan said, pointing specifically to Aurora’s team in Vancouver. “We want to be able to introduce our genetics portfolio to the international market.”

Aurora’s indoor infrastructure is important to that plan because, according to Jordan, much of Curaleaf’s genetics portfolio was developed specifically for indoor growing.

“It is very difficult for us today to introduce that portfolio to other Canadian growers because they all grow out of greenhouses,” he said. “So we need an indoor grower to introduce our genetics into that portfolio.”

Thus, Curaleaf is looking for production infrastructure suited to the type of cannabis it wants to sell internationally.

The Margin Doesn’t Stop at the Grow

Growing more premium cannabis only matters if Curaleaf can sell it efficiently. This is where Jordan believes the companies’ European footprints begin to fit together.

Aurora has international medical cannabis distribution, but Curaleaf operates further down the supply chain in several markets: the UK, Germany, Poland, and other infrastructure the company has assembled across Europe.

And according to Jordan, that gives Curaleaf places to put Aurora’s product almost immediately.

“The minute we close the deal,” Jordan said, Curaleaf could begin reviewing Aurora’s portfolio and moving products through the combined network.

“We would probably combine our distribution in Europe into one distribution network, not to have to carry the double costs,” he said.

But eliminating duplicate costs is only part of the equation.

Some Aurora products currently reach European markets through third-party distributors. From Jordan’s perspective, every outside layer represents margin that the combined company could potentially retain.

“By going through us, we’ll keep the whole margin now in one company,” he said and explained that Curaleaf’s European business currently operates at approximately 42% gross margin and 15% EBITDA margin. Combining with Aurora, Jordan believes, could push gross margins closer to 50% and EBITDA margins above 20%.

“It’s something that neither they are capturing, nor we are capturing today,” Jordan said, “but together we capture that full margin.”

Europe Is Still a Young Supply Chain

There is another reason Jordan wants greater control over production.

Curaleaf did not enter Europe expecting that it would eventually need to own every part of its supply chain. Jordan said the company initially believed it could own roughly 20% of its cultivation needs and source much of the rest from outside producers, keeping capital requirements lower while building the business.

As the European operation expanded, Curaleaf found that reliable supply at the quality and consistency it wanted was not always available.

The problem, as he describes it, is finding cannabis that consistently meets Curaleaf’s specifications across markets. Jordan said Curaleaf has sourced product from suppliers in Canada, Africa and South America, but that the standard is not always where the company needs it to be.

“We need to vertically integrate and control our supply chain because Curaleaf has a standard of our products,” he said. “The supply chain is years away from becoming efficient in Europe, and we have to sell our products today.”

Aurora therefore offers something that buying cannabis from another producer does not: greater control over a significant portion of the production feeding Curaleaf’s international network.

$40 Million in Synergies — But That’s Not the Whole Story

Curaleaf estimates $40 million in annual synergies from Aurora. Curaleaf’s European SG&A is around 29%, with 27% expected as it scales, while Jordan sees additional savings in cultivation. He said Curaleaf’s average yields increased from roughly 50 grams per square foot two years ago to 120–130 grams today, a 2x-plus improvement he believes Curaleaf could bring to Aurora.

Then the $500 Million Number Put It Together

Jordan’s case for Aurora came down to indoor cultivation, genetics, higher yields, lower costs and European distribution. Ultimately, those advantages converged around one thing: scale.

Curaleaf’s European business is still smaller and less mature than its U.S. operation. Jordan said that is reflected in its margins.

In the U.S., he put Curaleaf’s gross margin at approximately 51.5% and EBITDA margin at around 24%. In Europe, the comparable figures are approximately 40% to 42% and 15%.

But Jordan believes there is a level at which the international business begins to look much more like the U.S. operation economically.

“Once we get to half a billion of sales, I think our margins will be about the same as they are in the U.S.,” he said.

And yes…. Aurora gets Curaleaf remarkably close to that number.

“This transaction will actually get us almost there,” Jordan said. “Because it’s going to get us to about $490 million of revenue with a fully vertical chain.”

And after nearly half an hour discussing individual pieces of the transaction, Jordan finally compressed the acquisition thesis into one sentence.

“So now you understand why I’m doing this,” he said, “because this transaction gets me to the scale to be able to earn the right margin.”

I laughed.

“It took only 15 questions.”

The exchange was lighthearted, but the answer was substantive.

Beyond adding revenue and cutting costs, Curaleaf’s bid is that Aurora could supply the indoor production Curaleaf wants, at yields it believes it can improve, feeding products and genetics into a European commercial network it has already built while bringing the entire international operation close to the scale where its margins could begin to change materially.

Aurora’s special committee is reviewing the proposal, and the company has made no decision.

But Jordan’s argument for pursuing it is now much clearer: Aurora could be the asset that makes the economics of its existing international platform work at a different scale.

In the next installment of IgniteIt’s exclusive interview with Jordan, he explains why Aurora’s indoor grows are central to Curaleaf’s thesis — and how Curaleaf believes it could push yields from roughly 80 grams per square foot toward the 140 grams achieved at some of its own facilities.

Stay tuned. Stay ignited.