Curaleaf Holdings (CURLF +0.26%) has been aggressively pursuing Canadian-based cannabis producer Aurora Cannabis (ACB +8.61%) for well over a month. However, that hasn't been known to investors until recently, with Curaleaf now launching a hostile takeover attempt, as it claims Aurora hasn't been responding to its request for negotiation. "To date, Aurora has been unwilling to engage in constructive discussions," it states in its most recent press release.
Aurora Cannabis, however, has been a poor-performing stock, falling an incredible 95% over the past five years. It has struggled to generate much in the way of growth, and it's frequently in the red. Is this really a good move for Curaleaf?
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What does Curaleaf like about Aurora?
Aurora has been a big name in the Canadian cannabis market, but that's not really why Curaleaf likes the business. The Canadian market is, after all, highly saturated and competitive. Canadian producers are eager to find other opportunities because the margins are so thin and it's hard to turn a profit.
Instead, it's Aurora's international presence that Curaleaf sees as a huge incentive to buy the business. The company sees this as an opportunity to expand its opportunities in international markets, particularly in Europe, where it notes that Aurora has "more than 50 tons of annual EU-GMP cultivation and manufacturing capacity." Curaleaf has three EU-GMP certified facilities, as it's been eyeing international cannabis markets as well.
NASDAQ: ACB
Key Data Points
Curaleaf estimates that through the acquisition, it could achieve $40 million worth of annual cost synergies by combining forces with Aurora. The combined business, it calculates, would have generated $1.5 billion in revenue over the past 12 months and $350 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Is this a good move for Curaleaf?
Curaleaf is a leading multi-state operator and has a strong business. Buying Aurora Cannabis at a beaten-down valuation could be an effective way for it to quickly expand into international markets; the offer comes out to approximately $272 million. There is risk with Aurora given its underwhelming financial results, but it has gotten leaner over the years. There may be some challenges, as there always is with acquisitions, but I believe it could be a good move for Curaleaf, in its efforts to build a strong international cannabis business.
OTC: CURLF
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Its stock has also struggled, nosediving 73% over the past five years, but that's largely due to the broader industrywide challenges that have been weighing on cannabis stocks due to the lack of movement toward legalization in the U.S.
While a deal with Aurora is by no means a certainty, this is a positive sign that Curaleaf is looking to expand internationally and grow its presence. For growth investors who are willing to be patient and are comfortable with taking on some risk, Curaleaf could be a suitable stock to buy and hold.
