Part of cannabis and investing
One of the largest U.S. East Coast cannabis retailers, Curaleaf Holdings Inc., plans to acquire the leading West Coast cannabis-oil producer for $1.27-billion in a deal that features a billionaire investor on both sides of the table and minimal opportunities for independent scrutiny of the takeover.
Curaleaf, which owns 44 stores in 12 states, made an all-stock offer on Wednesday for a private company named Cura Partners Inc. that sells oils under the Select brand and is the market-share leader in four states, including California. Curaleaf, a public company listed on the Canadian Securities Exchange (CSE), is controlled and 30-per-cent owned by executive chairman Boris Jordan, who made his first fortune as an investor in newly privatized Russian companies in the 1990s.
A private equity fund that Mr. Jordan manages, called Measure 8 Venture Partners, owns an 11.5-per-cent stake in Cura Partners, based in Portland, Ore., that is now worth more than $150-million. In an interview on Wednesday, Mr. Jordan said the two companies worked to the highest standards of governance. Although he is on the board of directors at both companies, Mr. Jordan recused himself from all discussions of the transaction and he is abstaining from all votes on the offer. He said: “I made an introduction a year ago. I was never involved in negotiations, and all voting is done without me.”
This is the latest in a series of cannabis transactions to feature insiders investing on both sides of the transaction. Aphria Inc. was targeted by short-sellers in December who said the company overpaid when it spent about $300-million last fall to buy businesses in Jamaica, Colombia and Argentina that were partly owned by the company’s executives and long-time backers. After a review requested by the Ontario Securities Commission, Aphria wrote down the value of the newly acquired assets by $50-million in April.
One institutional investor who owns a stake in privately held Cura Partners said this takeover is significantly different from the Aphria transaction, because Cura Partners is controlled and largely owned by sophisticated investors who are totally independent of Mr. Jordan, while Aphria featured the same individuals on both sides of the deal.
Curaleaf had sales of US$88-million last year, and Cura Partners sold US$117-million of cannabis oil. Curaleaf shares rose 12 per cent on news of the takeover, closing Wednesday at $14.90 on the CSE, which gives the Wakefield, Mass.-based company a $5-billion market capitalization. When the deal closes, Cura Partners shareholders will own 16 per cent of the combined companies.
As part of the transaction, shareholders in Cura Partners have an opportunity to earn an additional US$200-million, paid in Curaleaf shares, if the company exceeds 2020 sales goals. Cura Partners founder Cameron Forni will join Curaleaf as a board member and president of its Select division. In a press release, Mr. Forni said: “The leading companies in the industry on the West Coast and the East Coast are now joining forces to progress the legalization and mainstream acceptance of cannabis across the country.”
Curaleaf’s offer makes use of exemptions in Canadian securities law to avoid both a formal valuation of its bid and a vote on the offer by Curaleaf shareholders; the owners of privately held Cura Partners will hold a vote. To deal with governance issues, Curaleaf’s board struck a special committee that the company said in a news release was free of conflicts of interest. That committee received an opinion from investment bank Beacon Securities Ltd. that said the offer is fair to Curaleaf shareholders from a financial point of view, based on “assumptions, limitations and qualifications set forth therein." Curaleaf did not release the fairness opinion.
Law firm Stikeman Elliott LLP is advising Curaleaf on the takeover, along with U.S. firm Loeb & Loeb LLP. Stikeman was also Aphria’s legal counsel on its Caribbean and Latin American acquisitions last year. Stikeman is no longer Aphria’s law firm of record. On Wednesday, Stikeman declined to comment on the Curaleaf and Aphria transactions.
Curaleaf tapped investment banks GMP Securities LP and Eight Capital as its financial advisers on the transaction, while Canaccord Genuity Corp. and Bayline Capital Partners worked with Cura Partners, along with law firms Dentons US LLP and Goodmans LLP.
Andrew Willis