Business Building

Curaleaf vs. Aurora, round two: debt versus dilution. A lesson in who is paying whom!

For a little over a week, the takeover fight between Curaleaf and Aurora has mostly been fought through press releases. On 1 September, Aurora’s board voted unanimously to reject the offer. On 2 September the directors’ circular went out to shareholders, and Curaleaf responded the same day. On 8 September Curaleaf followed up with a fact sheet that goes through more than a dozen of Aurora’s arguments and labels them myths. Boris Jordan wrote on X that Aurora never signed an NDA, never discussed price and never made a counteroffer. Miguel Martin replied on LinkedIn that shareholders should focus on the value they already own. Business of Cannabis counts this as the first hostile bid in the sector since 2019, and by now it sounds like one. Jordan has openly questioned Martin’s motives in an interview with Business Insider.

In round one I looked at what Curaleaf is actually buying. My thesis was access, not greenhouses. The quarterly numbers from both companies, which I have gone through since, support that even more. But the last two weeks have made it clearer that more is at stake. This is about which balance sheet you take into the next capital cycle, and about who is really paying whom in this deal.

The offer and the two camps

Curaleaf is offering 0.3463 of its own shares plus US$0.75 in cash for every Aurora share. At Curaleaf’s closing price of US$9.39 on 10 August, that comes to US$4.00 per share, or roughly US$272 million (C$374.8 million) for the whole company. Just under a fifth of that is cash, the rest is stock. At Curaleaf’s current price of just under US$10, the package is worth about US$4.20. It is capped at US$5.00, and that cap was not part of the first proposal in July. The offer has been open since 18 August and expires on 1 December. Curaleaf puts the premium at 45 percent over Aurora’s average price of US$2.75 across the previous 30 days, and at 110 percent if you strip out Aurora’s cash of about US$1.62 per share. On top of that, Curaleaf is promising at least US$40 million in annual cost synergies.

Aurora’s position is quickly told. The company has C$149 million in cash, no debt and a growing international medical business. In return it is being asked to take mostly shares in a company that carries around a billion dollars in debt and lease liabilities, trades over the counter in the US and is controlled by one person through multiple voting shares. Martin calls the offer inadequate and says its upside is intentionally limited.

Curaleaf answers with Aurora’s past: C$4.67 billion in impairments, more than C$480 million in negative operating cash flow since fiscal 2021, about US$398 million raised through share issuance since September 2020 with roughly 31 percent dilution, and a 97 percent share price decline under the current CEO. It sums this up in the sentence this round revolves around: debt can be repaid, dilution is permanent.

Where both sides have a point

In my view, each side has one argument that really lands.

For Curaleaf it is Aurora’s ATM program, the ongoing sale of new shares into the market. Aurora kept selling shares last quarter at an average of US$3.09, and according to Curaleaf has been selling even more since the bid. At the same time, the board is telling shareholders that US$4 is too little. There is an explanation for this. An ATM program runs opportunistically, and you don’t read a company’s value off the price of the last share sold. It still looks bad, and Curaleaf will repeat it in every release until December.

For Aurora it is the currency it is being paid in. Boris Jordan holds 18 percent of the equity and 69 percent of the votes. The clause that would have automatically converted his multiple voting shares into ordinary shares once Curaleaf lists on a US exchange was removed at the annual meeting in June, with 79.66 percent of the independent votes and one director voting against. After the deal, Aurora shareholders would hold about 7.7 percent of the equity and 3.2 percent of the votes. Then there is the cap. By my calculation it kicks in at a Curaleaf share price of about US$12.27. If the stock rises above that before closing, Aurora shareholders still get no more than US$5. Curaleaf replies that Aurora used the same structure in its own past acquisitions and that the board could shorten the bid period from 105 to 35 days. The more important part is what comes after that. Curaleaf now says openly that both the cap and the timeline are negotiable if Aurora comes to the table.

On value, two sets of numbers face each other. Aurora’s financial adviser Fort Capital considers the consideration inadequate. Derek Lessard of TD Cowen, cited in Aurora’s circular, sees US$4 to US$5 as undervaluing the business and calls the 110 percent figure misleading, because Aurora’s cash is already reflected in its share price. Aurora itself arrives at US$7.03 per share based on comparable transactions at 1.8 times revenue. Curaleaf points to Aurora’s own outlook for fiscal 2027, under which revenue falls back to fiscal 2025 levels, adjusted gross margin drops from about 64 percent to the mid to high 50s and adjusted EBITDA comes in below the prior year. Aurora says that reflects the deliberate wind down of its consumer business, and that it is aiming for new records in revenue and EBITDA over time.

That leaves the dispute over whether the two sides ever talked. Aurora’s circular provides a timeline. Martin and Jordan first met virtually on 22 June. The next day brought a letter without a price, asking for 30 days of exclusivity, which Aurora declined. On 7 July Curaleaf sent a nonbinding proposal of about US$4 with five business days to respond. Aurora turned it down on 10 July, and Jordan then corresponded with Aurora’s lead independent director Michael Singer into late July. On 11 August Curaleaf went public. So both accounts can be true. There was talking, but there was no negotiating.

In its circular, Aurora also lists a series of formal objections. The deadline of 5 pm Mountain Time on 1 December allegedly falls short of the 105 full days the law requires. The notice in French required for Quebec is said to be missing. Canadian shareholders would not get a tax deferral under Section 85(1), and shareholders in 29 US states would receive no Curaleaf shares at all, only the proceeds of a sale on the TSX. On tax, Curaleaf’s fact sheet only says it is open to discussing it. There has been no public response on the other points so far. Individually this is small print. Taken together, it suggests the offer will have to be reworked in any case.

Why Curaleaf is paying in shares now

The timing has a lot to do with Washington. Since 28 April, state licensed medical cannabis in the US has been in Schedule III by order of the Justice Department. On 9 September a federal appeals court rejected a request to suspend that order. The broader rescheduling, including adult use, was heard from 29 June to 15 July. The government filed its closing brief on 17 August and asked the judge to issue his recommendation quickly. There is no timetable for it.

At the same time, the exchanges are opening up. On 10 June Trulieve became the first plant touching US cannabis company to list on the NYSE, after separating its adult use business from its financial statements. Glass House did the same. This week Nasdaq clarified its listing guidance: medical operators registered with the DEA can list if they provide a legal opinion confirming compliance. Curaleaf applied in the second quarter to register all of its medical sites with the DEA, and on 5 June it consolidated its shares one for three. Around 698.7 million subordinate voting shares became around 232.9 million, explicitly in consultation with the major US exchanges and to meet their minimum price requirements for an uplisting.

I need to say something about charts here, because it happened to me in round one. Anyone who pulls up an unadjusted CURLF chart today sees a 52 week range of US$1.80 to US$12.45 and concludes the stock has gone up fivefold. It hasn’t. On those charts, every price before 5 June is still quoted in old shares, at a third of the comparable value. Adjusted, the range on the TSX is C$7.77 to C$20.92. The stock currently trades there at C$13 to C$14, and at just under US$10 in the US. That is about 80 percent above the adjusted low and roughly a third below the high. Over the twelve months to 10 August, Curaleaf by its own count was up 56 percent and Aurora down 35 percent. That is not a fivefold increase. Aurora is often criticised in this debate for having consolidated its own shares in 2020 and 2024. Curaleaf did the same three months before the bid, for the same reason.

The underlying point doesn’t change much, it just gets more sober. Since rescheduling, Curaleaf’s stock works as a currency again, Aurora’s share price was on the floor, and that is exactly the situation in which you buy with shares rather than cash. The value of those shares, however, depends on a regulatory decision that is still pending. If it comes before closing and the stock rises sharply, the cap means Aurora shareholders only benefit up to US$5.

Who is spending whose money

Curaleaf published its second quarter results on 5 August, six days before the bid. Revenue rose 10 percent to US$340.1 million, international revenue 26 percent to US$51.4 million. Adjusted EBITDA was US$70.1 million and net income US$12.5 million. Further down, the release shows a loss before tax of US$26.3 million for the quarter and US$54.9 million for the half year. It only turns into a profit through a tax benefit of US$38.8 million in the quarter and US$137.5 million in the half year. The release does not say where that comes from. The obvious candidate is 280E, the tax rule that has kept US cannabis companies from deducting ordinary business expenses. Not much of it shows up in cash flow. Operating cash flow for the half year was US$50.3 million, and free cash flow after capital spending was US$17.4 million. Interest expense in the second quarter alone came to US$27.6 million. The stock fell 7.4 percent after the results.

Then there is the financing. In February Curaleaf replaced its US$475 million notes at 8 percent, due in December 2026, with new notes of US$500 million at 11.5 percent maturing in February 2029. The big maturity the industry keeps talking about is behind it. The price was three and a half percentage points more interest, which on the new notes comes to US$57.5 million a year. At 30 June, Curaleaf had US$611.5 million in financial debt against US$107 million in cash, and around a billion including leases.

Aurora has C$149.1 million in cash and no debt. With about 68 million shares outstanding, the cash part of the offer costs about US$51 million, or roughly C$70 million. Aurora’s cash covers that a little more than twice. After closing, Curaleaf would effectively be paying the cash portion with Aurora’s own money and the rest with stock. For a company that borrows at 11.5 percent, that is about as cheap as growth gets. The group balance sheet would then include an international medical business with no debt, which improves exactly the metrics institutional investors look at.

This has to be seen against the whole industry. Last week High Times pulled together figures from Cannabis Industry Insights and Viridian Capital Advisors. According to them, about US$6 billion of US cannabis debt matures by the end of 2026, US$2.5 to 3 billion of it this year. In 2025, 94.8 percent of the capital raised by licensed US operators was debt, and nine of the ten largest raises were debt deals. Because plant touching cannabis companies are largely shut out of regular US bankruptcy proceedings, restructuring is rare when things go wrong. The lender takes the assets. Anyone who has already refinanced can go shopping in that market.

The line that debt can be repaid is therefore more of a bet than a fact. It pays off if the broader rescheduling comes, 280E falls away for adult use as well and the tax benefit turns into real money. If the decision slips into 2027, Curaleaf remains a company that generated US$17.4 million of free cash flow after interest and capital spending in the first half, while carrying more than US$600 million in financial debt. The same logic cuts the other way for Aurora, though. A 97 percent share price decline can’t be repaid either.

What Curaleaf is actually buying

I described in round one what Curaleaf would get. Since then, both sides have put numbers on it. Curaleaf’s management told analysts on 5 August that only about 20 percent of the product in its international business comes from its own facilities, that supply is currently one of its biggest problems, and that it wants to raise its own share to 50 to 75 percent within six to twelve months, working with partners like Cannara and Village Farms. Six days later came the bid for Aurora.

Aurora says it grows 72 percent of its international supply itself, in four EU GMP certified facilities totalling around 33,000 square metres, including Safari Flower in Ontario since April. Curaleaf itself puts Aurora’s annual EU GMP capacity at more than 50 tonnes. Curaleaf has its own EU GMP sites in Portugal, Spain and Canada, but by its own account covers only a fifth of its needs from them. Aurora has grown its European medical revenue from C$41 million in fiscal 2024 to C$131.8 million in fiscal 2026, and on 19 August it bought a UK import licence with a pharmacy for £2.1 million.

Then there is the revenue mix. Aurora is winding down its Canadian consumer business and sold its stake in Bevo in February. What remains is an almost purely medical company. Curaleaf says about 60 percent of its US business is medical. Every additional euro of medical revenue makes the story of a medical company more credible when it comes to listing on a major US exchange. For Curaleaf, Aurora is therefore not just supply, but also a building block for the uplisting.

Too big to fail as a strategy

Put together, this gives me a fairly clear picture. Curaleaf wants to be the biggest, most profitable and, for institutional investors, easiest to understand name in the sector when the major exchanges open up. The capital that follows will go to the biggest names first. Pension funds and credit desks don’t care about genetics. They want liquidity, scale and a balance sheet they can explain to their investment committee. Curaleaf expects the combined company to have a market value of around US$3 billion, more than US$1.5 billion in revenue and nearly US$350 million in adjusted EBITDA over the last twelve months.

In this industry, too big to fail means something very practical. When the debt of midsize operators comes due, you are among the buyers and not among those being sold. Aurora would be the first big acquisition of this kind, and a cheap one, because it has no debt and is paid for mostly in shares.

The risk is just as clear. The strategy only works as long as the market goes along with it, and whoever is biggest also carries the biggest interest bill. If the broader rescheduling comes later than hoped, or not at all, Curaleaf is left with the same US$500 million at 11.5 percent, just with more shares outstanding.

What the first capital cycle showed

Last week High Times published “Beware of the Chads”, a look at what the first capital cycle from 2014 to 2021 did to a generation of founders. Bruce Linton was fired at Canopy Growth by a board on which Constellation Brands held four of seven seats. In his book Weed Empire, Adam Bierman describes how Gotham Green’s financing tranches at MedMen came with worse terms each round, until the lender was in control and his keycard no longer worked in his own building. Gotham Green disputes his account. Flow Kana and High Times itself went a similar way. First came the money, then control went.

Aurora and Curaleaf both survived that cycle, in opposite ways. Aurora got through it with equity, meaning share issuance, dilution and impairments. According to Aurora’s own figures, though, 98 percent of the C$4.67 billion in impairments were booked before September 2020, under previous management. For 2023 to 2025, Aurora puts C$85 million in impairments and C$181 million in net losses on its side, against C$204 million and around C$1 billion at Curaleaf. Curaleaf, for its part, got through it with debt, scale and concentrated control. Curaleaf’s insiders say they have nearly US$500 million of their own money in the company. At Aurora, insiders hold about 1 percent but, according to Curaleaf, would be entitled to around 10 percent of the transaction value in a change of control.

That, to me, is the real difference from last time. In the first cycle it was founders against financiers. Today it is an owner with control and debt against a salaried management team with cash. For an Aurora shareholder, the question is not who comes across as more likeable. The question is whether to keep a balance sheet without debt and a growing European business, or to hand both over for around US$4, capped at US$5, to a leveraged consolidator whose stock is betting on a decision in Washington.

What this means for Germany

Both companies say they are among the leading suppliers to German pharmacies, Curaleaf through Four20 Pharma. That subsidiary has been wholly owned since April, and Four20 cofounder Torsten Greif now sits on Curaleaf’s board. Together they would be one of the largest suppliers with their own EU GMP production, their own distribution and a range across every price tier. For pharmacies that would mean fewer but larger suppliers with more pricing power, in a market where statutory health insurance stopped reimbursing flower on 30 July and self paying patients mainly look at price.

What strikes me is how Boris Jordan uses the end of reimbursement in Germany. He cites it as a headwind for Aurora in one of its two most important markets, alongside the roughly 30 percent cut in Canada’s federal reimbursement rates since April, which shrank Aurora’s Canadian medical business by a quarter last quarter. But the end of reimbursement in Germany hits Curaleaf’s own subsidiary Four20 Pharma just as hard as it hits Aurora. Aurora’s international business grew 17 percent to C$43.3 million in the quarter to the end of June, mainly on the back of Germany. Curaleaf International grew 26 percent over the same period. Both quarters ended before 30 July. The first numbers under the new conditions are expected in November, and Aurora has guided to higher revenue and EBITDA for that quarter. That will tell us quite a lot.

For everyone else in the market, from Tilray to the German importers and the midsize players, the deal puts a public price on international access. Take out Aurora’s cash of about US$1.62 per share, and Curaleaf values the entire operating business, meaning Canada, Europe, Australia and four EU GMP facilities together, at roughly US$160 million. Even at the US$5 cap it would be around US$230 million. Anyone raising money in Germany right now for import, distribution or GMP capacity should know that number. Access is valuable, but apparently not expensive.

What happens next

Aurora shareholders have until 1 December, unless the deadline has to be extended anyway. The board essentially has three options: a competing offer, a standalone plan with targets that can be checked, or negotiations with Curaleaf. According to Business of Cannabis, Aurora is exploring alternative offers from third parties, but it won’t comment. Curaleaf has left the door to talks open. The longer Aurora responds only through press releases, the harder that position becomes to hold.

Over the next few weeks I am mainly watching the judge’s recommendation on the broader rescheduling, because it determines what Curaleaf’s stock is worth, and Aurora’s share sales into the market, because every share sold below US$4 helps Curaleaf. Then in November come Aurora’s first numbers since reimbursement ended in Germany, and Curaleaf’s third quarter, where I will look at the tax line first.

To me this case is a lesson, however it ends. It shows quite precisely how the second capital cycle in this industry works. Deals are paid for with stock the market takes seriously again, and the targets are companies with cash and no debt. Anyone sitting down with investors in the coming months should know beforehand which of those two sides they are on.

Round three will follow.