Why Us, Why Now: Boris Jordan Answers Aurora Shareholders | TTB Presented by Flowhub

Good to be here, guys. And thanks for hosting this. We really appreciate it.

Yeah, I have an opening statement which I'd like to go through and then we can go into the Q&A. And I wanted to make sure that I want everyone to understand there are prepared questions that were sent in advance and I'm happy to answer. But I also want to make sure that anyone who has a question can ask it now. No matter how difficult it is because I don't want there to be any feeling out there that I'm hiding from difficult issues or questions. I want to be able to answer as difficult as they may be. I want to be able to answer them.

Thanks guys again. Hi everyone. And thank you for joining us today. And I'd like to spend a few minutes talking about three subjects. One, Curaleaf and our offer. And that's important because 80% of our offer is Curaleaf stock. And so there may be people that don't know our company. And so I'd like to talk about that a little bit. And then the offering is a little bit complex. So I'd like to go through what the offering is. I'd like to also talk a little bit about what we see in Aurora. And I'd like to tell people what our vision is for these two companies being together. And as shareholders, those that are on here, whether you're a Curaleaf shareholder or an Aurora shareholder, you deserve three things. You deserve results, value, and a clear vision for the future of this investment. And we believe our offer delivers all three of those things. So, here's what I'd like to do. Let's talk about Curaleaf for a second. I've spent a decade building Curaleaf and I've invested hundreds of millions of dollars of my own capital into this company. And I think that's one of the big differentiators of Curaleaf against a lot of other companies in that I didn't get my stock for free. I wasn't a founder that got the stock. I actually bought into a company called Palliatech and ended up starting to invest and working with the management team to build the company. And so I have a tremendous amount of skin in the game alongside all the other investors that have invested in Curaleaf alongside of me. We are the largest cannabis company in the world with operations in 15 states in the US and 17 countries globally. Last quarter alone, we did $340 million in revenue and $70 million in adjusted EBITDA. Through the first half of the year, Curaleaf generated net income of $82 million, $50 million of operating cash flow, and $17 million of free cash flow. Given the seasonality of our business, we would expect our cash flows to accelerate in the second half of the year as they do every year. Last year, we generated over $150 million of operating cash and $94 million in free cash flow. That means the strength of our operations funded our obligations and growth investments with cash left over at the end of the year. This year, analysts project Curaleaf will generate $1.45 billion in sales, up 15% from last year, and $284 million in adjusted EBITDA. We have some of the most well-known cannabis brands both in the US and in Europe. In the US, Select is the number one vape brand across our markets and Curaleaf is the most recognized global brand in cannabis and that has a lot of value to it. We have one of the strongest balance sheets in the industry. We have $107 million in cash and debt is just 2.3 times adjusted EBITDA, a healthy manageable level. Last quarter, our international business grew 26% year-over-year with real momentum in Germany, the UK, and we're very excited about expanding into three new countries in the next few months: Spain, France, and Turkey. I'm actually in Turkey right now speaking from here where we're launching our new facility with a combined population of 210 million people between those three markets. We also have multiple growth catalysts ahead in the US and beyond. Obviously, one of them being the schedule three. I'm not going to spend a lot of time on that, but obviously that's a major change in the US market. The medical one has already happened. We expect the adult use one to happen literally imminently. It could be today, it could be tomorrow, it could be next week on adult use rescheduling. We expect to hear the update as I said in the next couple of weeks. We also believe that the 280E guidance that's going to come out is likely to be retroactive also for several years going back which should give a lot of clarity on balance sheets not only for Curaleaf but a lot of other cannabis companies in the US. And then obviously the hemp legislation that we expect to expire on December 11th is also going to help a lot of our businesses come back to organic growth as hemp was the largest drag on US cannabis in the United States. So when you look at Curaleaf, you're looking at a profitable, cash-generative global operator with a clear vision, a strategy to drive long-term sustainable growth supported by many regulatory and industry catalysts.

Curaleaf's offer now to Aurora shareholders. Our offer implied $4 a share of value based on a combination of stock and cash when we first announced the deal. Let me break it down in plain English. For every 100 Aurora shares you own, you would receive US$75 in cash and approximately 35 Curaleaf shares. Before our offer, those same 100 Aurora shares were worth approximately $276. We offered approximately $400 when we made our bid. That is a 45% premium. And you don't simply cash out and walk away. You receive Curaleaf shares. So you continue to participate in Aurora's assets and the future of the leading global cannabis company in the world. And as of last night's close, those 100 shares are now worth $421, now representing a 51% premium to Aurora price before our bid announcement, which is a result of the fact that Curaleaf shares have outperformed having increased 7% since we made the bid. And when you're accounting for Aurora's cash on its balance sheet, our premium is 110% and represents one of the highest premiums in total Canadian M&A in the last 10 years. And that means all M&A in every industry, this is one of the highest premiums ever paid in Canadian M&A. I'll be frank, the alternative for Aurora shareholders is reasonably bleak. A company getting smaller and less profitable by the day. A six-year turnaround that is still not finished. Continued dilution without a clear vision and a share price that has declined 97% under its current leadership. That's not a turnaround. That's six years of shareholders waiting while management collects their industry-leading paychecks. I have heard directly from many of you more than anything you want to know whether there is a credible plan for a credible management team to create value here. To answer that question, let's start with Aurora. What is Aurora actually today? We all know that Aurora has some valuable assets in particular its EU-GMP certified facilities and its leadership positions in an international medical market, Poland. That said, they have not been able to create a sustainable business, but we believe those assets are underutilized. Aurora's facilities currently produce approximately 50 tons of cannabis annually. On a comparable square footage basis, we believe we can double that output just as we have done in our facilities in the United States. Further proof that Aurora has been operating inefficiently is that it has had to buy in cannabis from third-party operators despite having plenty of its own capacity available to meet demand. And we have heard directly from people who have worked in and around these operations that execution has been a real challenge. We have a diversified platform to offer ACB shareholders. So this isn't a story about bad assets. It's a story about assets that haven't been able to perform to their full potential due to mismanagement.

What is our vision for the combined business? From the start, our vision has been to create the absolute dominant wellness-focused cannabis company in the world. Our international focus has been on providing high-quality medical cannabis products to patients in search of natural medicines. In fact, we have numerous partnerships in the US and Europe with university hospitals focused on research and medical and wellness cannabis product development. We invest more capital in R&D than any other cannabis company in the world. With Aurora, we can extend the lead we have today by creating an unmatched supply chain and leveraging our broad distribution network through which we sell excellent products and brands. All of which would generate approximately $500 million in international sales. Using Curaleaf genetics and our grow processes coupled with Aurora's indoor cultivation assets, we'll create an unparalleled global player. We're very excited about bringing these two businesses together. This is the reason why we trade a premium to the group and always have. It's because investors have confidence in our scale, strategy, vision, and execution. Why this combination works? When I first looked at the opportunity with Aurora, I immediately thought strategically it fits like a glove. Together, we would create the absolute unquestionable leader in cannabis outside the US. On a combined basis, looking at trailing 12-month numbers, we're talking more than $1.5 billion in revenue with roughly half a billion outside the US, nearly $350 million in adjusted EBITDA, exposure to multiple US regulatory and industry growth catalysts, and at least $40 million in expected annual cost savings. To Aurora employees, I want to emphasize that we see this very much as a growth story, not a cost-cutting story. And we'd be honored to have you all as part of our future. We plan to hold a separate session in the coming weeks for all of you together with our CEO of International, Juan Martinez, to speak to you directly and answer your questions.

Setting the record straight before we move into questions. Now, I know there's been a lot of noise over the last few weeks. In situations like this, there's a lot of back and forth between both sides. Press releases after press releases. Pretty soon everyone loses sight of the question that actually matters. What creates the most value for shareholders? That is what we laid out in the facts in our shareholder communication we posted online this week and on our microsite. You should also be receiving a hard copy in the mail. On those facts is that Aurora's own numbers point to a declining revenue, declining profitability, negative operating cash flow, and a business that management itself expects will become smaller and less profitable. These aren't our words, it's management's. And Aurora's business update yesterday doesn't change that picture. Sequential growth off of a 20% decline last quarter is not a turnaround. It's just an easy comparison. Yet, management still sold stock in the past few months through its ATM program. So, their actions suggest a continued lack of confidence in the company's future. And it's worth noting that they have reaffirmed an outlook that is still negative. At that point, Aurora's words and actions do not match. Even as Aurora says, 'Our offer is too low,' management is comfortable with constantly selling stock at prices significantly below our offer, diluting your shares and making them less valuable. Think about that for a second. Management was willing to sell shares as low as $2.60 per share in July of this year. A 35% discount to our offer made 3 weeks later. But now they are telling you that $4 is not enough and $4.21 based on Curaleaf share price last night. How does that make any sense? That's why we asked the Alberta Securities and Exchange Commission to halt and remedy Aurora issuances while you consider our offer. You deserve to make this decision before management sells off the very value that you're claiming to protect. In Aurora's own words issued in yesterday's press release, management appears ready to make more investments in Europe. If they came to the table to speak to us, they wouldn't need to waste shareholders' money. We already have these assets they are seeking to buy. In the UK, Curaleaf is the number one player with almost a 50% share. The recent acquisition they made is money wasted since we already have the pieces in place: cultivation, processing, clinic, and pharmacy. Most importantly, if management genuinely believes $4 undervalues the company and they were truly interested in getting more value for shareholders, they would talk to us. From day one, we've been ready to sit down with Aurora's board and discuss terms. Aurora would not sign an NDA. They have not had a single counter offer. They have not engaged in a single constructive discussion with us. They have not sent us a single counter offer. Not one.

We're going into Q&A in a second. So, I'll leave you with a couple of closing thoughts. If you can't tell already, I'm passionate about this industry. I'm passionate about this company and I'm passionate about the vision we have for the future. You'll also see that I don't shy away from tough questions. So, ask them. Challenge us. If there's something we need to answer today, we will. If there's something we can't, we'll make sure we do it later. And at the end of the day, this is your investment, your decision, your future. With that, we're going into Q&A. Some are presubmitted, some are coming in. Again, I want to thank the TDR guys, both Shad and Anthony, for hosting this session. Thank you.

Listen, I firmly believe that the number one thing a company has to do is it's got to invest in growth. It's got to continue to grow. It's got to continue to dominate. And that's what this investment is about. We are investing in growth. We're investing in the supply chain and we're investing in the fastest growing market right now in cannabis by making this investment. We are not worried at all about debt. We're very comfortable where our debt is. We are paying down some of our debt and we have plenty of cash to do that. We pay down about $3 million of debt every single month right now. So, we are paying down debt. But growth for us is more important because growth brings cash and then cash then you can do other things with. You can either invest in your business, you can buy back shares, you could pay down debt. And Curaleaf's doing all three just to make sure we're investing in growth with this deal. We are paying down debt and we have been buying back shares. So we're doing all three of those things but in that priority that we think is the most important. Growth is first.

Listen, I want to make something very clear. First of all, I believe this industry needs to consolidate. This is a scale business, right? Whether you're medical or you're consumer products, recreational cannabis, these are scale businesses. A lot of these small companies just can't survive at their scale today. If you look at just even Aurora's numbers that they've just put up in their last quarter, you know, they did $212 million in medical revenue, $219 US million total. They had gross profit of $120 million, but their opex was $128 million. So they lost $8 million just there. Curaleaf has invested $500 million real dollars in their international platform. They don't have the kind of capital, there isn't the capital available today in order to be able to do that. So it makes sense for them to consolidate into a larger player and give their shareholders an opportunity to participate in the upside on that deal. So there isn't a real business there, right? They've jumped from adult use to not adult use, medical to not medical. They've picked certain segments that are getting cut. We have a distinctive strategy and we also have a very diversified portfolio and that's a major important thing for shareholders of Aurora, right? They don't have a diversified... we can lean on our US business which is a $1.2 billion business today. We can lean on our international business. We're opening up new markets. It's a smart investment for them to do it.

Well, listen. I can't tell you what the Aurora board thinks because almost every shareholder I've spoken to, and by the way, I've spoken to senior people within Aurora that don't want their management to know, and they have said that they believe that over 50% of the shareholder base is supportive and the majority of the employees is supportive of this transaction. And so, you know, I know by saying that probably Aurora will come out and say that's not true, but that is true. We're talking to employees. We're talking to shareholders all the time and as I said the value is in the global platform that Curaleaf has built and you are merging into, you're being bought in and merging because you're getting 80% of Curaleaf stock and that was done on purpose guys. Listen, we could have put a cash bid together, we had plenty of banks that would finance a cash bid for Curaleaf on this deal but we did this because we wanted the Aurora shareholders to participate in the catalysts that we're about to have in the US. And if they move fast, I know there's another question about the deal structure, but if they move fast, they will understand one clear thing that they will get the Curaleaf shares faster and they'll be able to participate in that upside on the US catalyst side much much faster. But by dragging this thing out for the 110 statutory days, many people don't know this. In Canada, you could close this deal in 35 days if there's an agreement on both sides. But by dragging this thing out, they are hurting their shareholders of not being able to participate in the upside in merging this business into a company like Curaleaf.

And a 51% premium as of yesterday. That's right. As of yesterday's close, it's a 51% premium. And obviously, as Curaleaf grows, because of the five cap, their premium will grow. So this is a very attractive deal. And I do not understand why. I mean, frankly, you know, I'm not in the old days. Remember the 1980s where these guys used to raid the companies, but it almost feels like that. Like you have like remember the movie Wall Street where these guys are sitting up there and the guy's asking, 'What the hell are you guys doing?' Right. It almost feels like that guys. You know, yes, you're getting good salaries, but look at their... they just upped when we looked at their recent proxy, when we looked at the way they have structured their buyouts. They all get these huge golden parachute packages. Let me tell you something about Curaleaf. I don't get any goddamn package if my company gets bought, right? I get nothing because I wouldn't even think of going to my board with that. My job is to build the company for growth. My job is not to sit there and try to flip it and make money for myself. My job is to make money for my shareholders, of which I'm the biggest one.

Come and talk to me. I've made an offer. Make a counter. They've made no counter offer.

I'm going to quote someone, not going to name them, but I was told this by a certain senior manager of the company. 'All things being equal, Boris, I'd like to run this company for another five years.' Let me tell you something. If there's somebody that's better to run my company, please. Tomorrow, I'm a shareholder. My first thing is I want to make money. That's how I look at things, right? I want to make as much money on this investment as I possibly can. And so I am not holding on to my seat as a CEO. It's an irrelevant rounding error as far as I'm concerned. I want to make big dollars, big multiples on my investment in this company. Right? So, if there's somebody better to run this company, let them come in and run it. But I personally think these guys are, I hate saying this, but they're trying to hold on to their jobs. There is no reason for Aurora to be independent. It has no chance to compete against global players like Curaleaf in this environment. And if it's not going to be them, we're going to do something with somebody else and their shareholders are going to lose because I don't believe there's a white knight out there that has our balance sheet, our positioning, our distribution, our new countries that we're going into right now to make this investment as efficient as it's going to be with Curaleaf versus somebody else. So sure there might be somebody that they drag out but there's not going to be anyone that where it fits as good as into Curaleaf and that has the same catalysts and upside that Curaleaf does over the next three to six months where these people can make the Aurora shareholders can make a lot of money.

Listen, our debt is at 2.3 times EBITDA. It's very very manageable from our perspective. We're generating a tremendous amount of cash. It is not something I'm worried about. I keep seeing this on Twitter and stuff like that. People just don't understand businesses, right? One of the reasons Curaleaf carries slightly more debt than some of our competitors because I put $500 million into building this international franchise. There's your number, right? And if you look at our leases, those leases are running off over the next five to six years, right in time for when I think you're going to get interstate commerce coming into the play. Curaleaf is a well-planned company. Nothing is by accident. Have we made mistakes? Absolutely. Absolutely. We've made mistakes. We've exited markets. Everyone's going to make mistakes when you have such a fast growing business. But the fact is we have well planned what we're doing. We know what we're doing. We have a strong balance sheet. And frankly, we also have strong shareholders, right? This isn't my only business, right? If there was actually a problem, Curaleaf would not have a problem. It's got me. Not only as a CEO who's committed, but also somebody who's got capital. But notice I have not had to put... every capital raise this company has done whether it's debt or equity every single one, I've been a big investor. So I have put my money where my mouth is. I believe in this business and shareholders should be comfortable with that because they're looking at someone that's got hundreds of millions of dollars invested in Curaleaf.

Great question and really important to understand because normally I wouldn't do this. If it was the US and I had a 30-day period where I could close a deal, I would never put a cap on it. Curaleaf, we are in the middle of a process that could be game-changing for the US cannabis companies. Right? We are going to be potentially significantly revalued on the back of these regulatory changes that are happening. And frankly, they're happening now. So, and I have to, under Canadian rules, I have to keep this offer open for 110 days. So, what happens if Curaleaf revalues two, three times during that period of time? I end up paying like $900 million for Aurora. That's just insane. Doesn't make any sense. So, I had to cap it. But with that, I've offered them another dollar. And the fact is it is likely that they're going to get that dollar because Curaleaf is appreciating right now. And so Curaleaf has to get to $17 and they get their five bucks and we're trading I think at 14 now or something like that. 14 something or something like that. Right. So it is likely that they're going to get the $5 in the back of that but the cap is there to protect the Curaleaf shareholder.

Listen, it's a free world. That's what I love about capital markets. You want to sell and take the 40% premium. I'm super happy for you. You know, you've made your money. You've got out now. But a lot of shareholders in Aurora, unfortunately, have been in the stock for a long time, right? They've been in it for, you know, let's be honest, guys. This stock traded over a thousand dollars at a certain point in time, right? So, there's a lot of people that I think the term is called bag holders that would love to make their money back. That's another reason why I offered stock as an alternative because people then get to still participate in the upside to make capital back in a much bigger, much more diversified company that they're in today. And so, that's one of the reasons that I structured the deal the way it is. And I think it's a well-structured deal for people. And again, if shareholders put pressure on the board and on the company and they write them, we can get this deal done in 30 days. Force these guys to the table.

They're not leading anywhere except Poland. Let's be completely honest. And Poland because they got there early, and good for them. Congratulations. I always give people credit where credit is due. They are a strong player in Poland, but because they got there early, and they built a good business there, right? So, good for them. But together with our business that will be the absolute dominating business in Poland. And the other thing I will tell you though about there and none of the other markets are they leading or leaders in, they're just not even on the radar screen in those markets except Australia where their business is declining every quarter substantially. Like substantially. And it's been a major drag on their business. But I just want to make a clear point that by combining that into our business, they are going to be able to do substantially better than they're doing today because we working together are going to win. They have a 50% SG&A, over 50% guys, to our 27 in our international business. US is 29 now but international business is 27. So, and one of the reasons their SG&A is so high is that their marketing spend is $65 million on a business that generates $212 million, whatever it was. I said $65 million in marketing costs. Curaleaf, which is a $1.45 billion business, runs...

Like a 225 million marketing budget. I mean, give me a break.

Yeah, I don't think they understand what Curaleaf has because they've never talked to us. I don't think they understand the power of our business in Europe. We are the global leader in all those markets except for Australia. We're a small player in Australia. But there's a reason for that. Australia, like California right now, is in a very difficult place where the plumbing is all wrong and it's hard to make, almost impossible to make money. So, I'm not going to go and put real dollars, substantial dollars into a business that's going to lose me money. Focusing on those markets where I can make money right now, right? I have a small presence there to make sure if the situation changes, I can quickly ratchet up, but I don't invest in markets where we're not going to be able to make money. And so that's our focus right now. It is invest in those markets and make money. And by the way, you know, Turkey, France, Spain, all of those markets are substantial. Now they have a presence in France, but working together with us and our partner, we're about to announce a partnership with one of the major pharmaceuticals globally in that market. That will be a huge win for both companies. Again, if they sat down and talked to us, any rational being in the investment world would say, 'Holy [__] this is a match made in heaven. Let's do it. Let's take the stock and let's ride this thing together.' But we're not having that contact.

We are very comfortable with the offer we've made. We've received no counter. We have no reason, we don't see a white knight. We have no reason to raise our bid. And even at this bid price where we are now, the shareholders make a lot of money. They get the upside in Curaleaf. Again, a lot of people don't realize they are swapping Aurora shares for 80% of their Aurora shares for Curaleaf shares. That's what gives them the upside in this deal above the 45% we're already giving. And by the way, I want to make it clear again. We are paying one of the highest multiples ever paid in Canada in an M&A deal. People don't seem to realize that. They're just emotional as you said, Shad, because they hold the shares. The one thing I want to teach, something that you know, I worked a lot with George Soros. I can tell you right now one thing he said to me, 'Boris, don't get emotional about your losses.' Okay. The losses are there, then you know you got to take them and you got to move on. Same thing here. Sitting there and saying I paid $15 and therefore you need to pay me $15 per share. That's just hogwash. I mean, Curaleaf traded at $23. You know, my stake in Curaleaf was worth four and a half billion dollars at that point in time. Do I get emotional about the fact? Yeah. I was stupid not to sell, but the fact is I took it, what I am. I stepped in as the CEO and I said, I'm going to fix everything and I'm going to make it worth four and a half billion again. That's where I am. That's what these people, I'm giving them the opportunity to step into Curaleaf alongside me, a person who's got a tremendous amount invested that is going to work day and night even at my crazy 60 years of age because I believe in what I'm doing.

It does. It does.