Blowing smoke: Does Aurora Cannabis really know what it’s doing?

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Cannabis entrepreneur Terry Booth wants to be the king of pot. Today, he is more like a Trumpian master of superlatives.

Ask him about the quality of marijuana his company produces and he’ll assure you it’s “the best bud without a doubt.” His cultivators? “The best growers in the world.” His executive team? “Better than anyone else’s.” Everything is the best or the biggest.

Uncouth and unapologetic, the 54-year-old chief executive officer of Aurora Cannabis Inc. is miles apart from your typical public-company executive overseeing a business that is worth $5-billion. Mr. Booth peppers his often hyperbolic speech with expletives. He talks candidly about drinking and getting high. He never misses Vancouver’s 4/20 bash, the annual protest against prohibition that doubles as the country’s biggest pot party.

He is not shy about admitting that this is his second turn as a marijuana dealer; his first was in high school. But the stakes are a lot bigger this time around. Aurora is regulated by Health Canada. It employs more than 900 people. It sells its cannabis to thousands of patients suffering from ailments ranging from cancer to chronic pain and will soon expand into Canada’s recreational pot market.

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It has raised an eye-popping $779-million from investors, who are hoping that Mr. Booth’s company is positioning itself to win big in the looming global green rush. By stock market value, Aurora is the country’s second-largest marijuana producer; it’s worth more than long-established Canadian firms such as Maple Leaf Foods Inc. and global auto-parts maker Linamar Corp. It’s even larger than the parent company of the Toronto Stock Exchange.

It already seems like a lot for a company that, two years ago, was languishing on a junior market as a penny stock and that has generated revenues of less than $50-million in the past 12 months. But for Terry Booth, too much is never enough.

Fuelled by investors’ giddy excitement about the potential of the global cannabis market, Aurora is using its easy access to capital and inflated valuation to finance an epic run of deals and expansion moves in Canada – where it now has production facilities in Ontario, Quebec, Saskatchewan and Alberta – as well as overseas. It has also snapped up a bunch of ancillary businesses, such as a greenhouse design firm and a German cannabis distributor, and taken partial stakes in others, including three rival producers, a chain of liquor stores in Alberta, a lab for testing cannabis and soft-gel and wafer makers.

Mr. Booth’s extraordinary shopping spree is making enemies, winning friends and turning heads. In January, Aurora bought CanniMed Therapeutics Inc., Canada’s oldest medicinal marijuana supplier, for a record $1.2-billion after putting its target into play with a hostile bit. Then in April, he dwarfed that deal by purchasing MedReleaf Corp., one of the largest producers, for $3.2-billion. Aurora is on track to overtake Canopy Growth Corp. for the No. 1 spot.

Aurora’s volatile stock ride

$16

3

14

4

12

10

5

8

2

6

4

1

2

0

May

Sept.

Jan.

May

2017

2018

1. July, 2017: Shares of Aurora are listed on the

TSX, jumping from the TSX Venture and, before

then, the Canadian Securities Exchange.

2. November, 2017: Aurora launches a hostile

takeover bid for rival grower CanniMed.

3. January, 2018: Amid an extraordinary (and

short-lived) rally in pot stocks, Aurora strikes a

$1.2-billion deal to acquire CanniMed for mostly

shares.

4. March, 2018: Aurora closes a $230-million debt

financing that can convert to stock, just before its

stock tumbles some more.

5. May, 2018: In its most audacious move yet,

Aurora agrees to buy Ontario cultivator

MedReleaf for a record- shattering $3.2-billion

almost entirely in shares.

CHRISTINA PELLEGRINI, THE GLOBE AND MAIL, SOURCE:

BLOOMBERG

Aurora’s volatile stock ride

$16

3

14

4

12

10

5

8

2

6

4

1

2

0

May

July

Sept.

Nov.

Jan.

Mar.

May

2017

2018

1. July, 2017: Shares of Aurora are listed on the TSX,

jumping from the TSX Venture and, before then, the

Canadian Securities Exchange.

2. November, 2017: Aurora launches a hostile takeover

bid for rival grower CanniMed.

3. January, 2018: Amid an extraordinary (and short-lived)

rally in pot stocks, Aurora strikes a $1.2-billion deal to

acquire CanniMed for mostly shares.

4. March, 2018: Aurora closes a $230-million debt

financing that can convert to stock, just before its stock

tumbles some more.

5. May, 2018: In its most audacious move yet, Aurora

agrees to buy Ontario cultivator MedReleaf for a record-

shattering $3.2-billion almost entirely in shares.

CHRISTINA PELLEGRINI, THE GLOBE AND MAIL, SOURCE: BLOOMBERG

Aurora’s volatile stock ride

$16

3

14

4

12

10

5

8

2

6

4

1

2

0

May

July

Sept.

Nov.

Jan.

Mar.

May

2017

2018

1. July, 2017: Shares of Aurora are listed on the TSX, jumping from the TSX Venture and,

before then, the Canadian Securities Exchange.

2. November, 2017: Aurora launches a hostile takeover bid for rival grower CanniMed.

3. January, 2018: Amid an extraordinary (and short-lived) rally in pot stocks, Aurora

strikes a $1.2-billion deal to acquire CanniMed for mostly shares.

4. March, 2018: Aurora closes a $230-million debt financing that can convert to stock, just

before its stock tumbles some more.

5. May, 2018: In its most audacious move yet, Aurora agrees to buy Ontario cultivator

MedReleaf for a record-shattering $3.2-billion almost entirely in shares.

CHRISTINA PELLEGRINI, THE GLOBE AND MAIL, SOURCE: BLOOMBERG

Mr. Booth has proven he’s a great salesman. He’s done big deals, raised a pile of money and acquired patients in Canada’s already highly-competitive medical marijuana business. He talks a big game about Aurora’s potential. He boasts about selling billions of dollars of pot.

But as the Canadian industry braces for legalization of recreational marijuana in the coming months, some wonder whether the company is stretching itself too thin. In any industry in which the money is flowing easily and investors are bullish – and that certainly applies to the pot industry right now – there are CEOs who use the moment to make a series of splashy acquisitions. Often, it doesn’t end well. All these deals have left Mr. Booth with a mixed bag of assets. Finding a way to successfully integrate them, while also amping up production at an ever-growing roster of facilities, could prove challenging for a CEO who has already shown he’s prone to a short attention span.

“There’s a lot going on,” says Jason Zandberg, an analyst at PI Financial Corp. “If the integration turns into a distraction, then they have fewer resources to put forward to capture market share.”

Read more: Trudeau battles provinces, Senate for right of Canadians to grow cannabis

Privately, others put it this way: It’s not clear yet whether Booth is a pot-industry visionary or an overambitious spendthrift who is cashing in on one of the most thrilling bubbles that investors have seen since the dot-com boom and bust.

What is clear is that the time for talking is coming to an end. As Canada prepares to legalize recreational pot, Aurora and its competitors need to prove they can grow enough product, attract enough buyers and make money in the process.

But Mr. Booth isn’t done talking. He’s too caught up in the rush that comes from running a company that’s become the new darling of the TSX. Where others see bubbles, Booth sees a massive, global market that’s his for the taking. “It’s about winning,” he says. “It’s about being the very best cannabis company in the world.”

In mid-March, Aurora’s flagship facility on land leased from the Edmonton airport is a muddy and busy construction site. You can drive around all 800,000 square feet – beware of the 200 workers and their dozens of moving trucks – but the best way to really see it all is from 1,000 feet in the air.

From the front seat of a rented helicopter, the $135-million building looks massive. Dubbed Aurora Sky, the place is a big jump for Aurora, whose first and, for the longest time, only, facility an hour outside Calgary is about 55,000 square feet.

When it starts operating at full tilt sometime in 2019, Sky is slated to yield 100,000 kilograms of weed a year. And it will do it with just three times the work force of its Calgary-area facility, as machines automate much of the work.

Mr. Booth can’t resist describing the new facility in world-beating terms. “It’s not only the very best cannabis greenhouse in the world,” he says. “It’s the best greenhouse in the world.” he brags. (Later, the company clarifies that, technically, Sky is not a greenhouse, but an indoor facility with a glass roof.) He may not sweat that detail, but he goes out of his way to say that the facility is unlike anything else in agriculture, anywhere in the world, and uses technology imported from Europe that has never before been used to grow cannabis.

“I’m getting excited,” he says. “Aren’t you?”

Scaling up

Aurora’s new production facility is several times

larger than its first – and an even bigger one is

in the works.

Aurora Mountain (Mountain

View County, Alta.)

is 55,200 sq. ft.

Yet to hit full production,

Aurora Sky (Edmonton)

is 800,000 sq. ft.

Recently announced Aurora Sun

(Medicine Hat, Alta.) will

measure 1.2-million sq. ft.

MATT LUNDY, THE GLOBE AND MAIL, SOURCE: AURORA

CANNABIS

Scaling up

Aurora’s new production facility is several times larger

than its first – and an even bigger one is in the works.

Aurora Mountain (Mountain

View County, Alta.)

is 55,200 sq. ft.

Yet to hit full production,

Aurora Sky (Edmonton)

is 800,000 sq. ft.

Recently announced Aurora Sun

(Medicine Hat, Alta.) will

measure 1.2-million sq. ft.

MATT LUNDY, THE GLOBE AND MAIL, SOURCE: AURORA CANNABIS

Scaling up

Aurora’s new production facility is several times larger than its first – and an even bigger

one is in the works.

Aurora Mountain

(Mountain View County, Alta.)

is 55,200 sq. ft.

Yet to hit full production,

Aurora Sky (Edmonton)

is 800,000 sq. ft.

Recently announced Aurora Sun

(Medicine Hat, Alta.) will

measure 1.2-million sq. ft.

MATT LUNDY, THE GLOBE AND MAIL, SOURCE: AURORA CANNABIS

Five years ago, Mr. Booth didn’t expect to be leading an enterprise like this one. He was semi-retired and playing golf five times a week. An electrician by trade, he made his money as an entrepreneur, and in 2013 he was still the co-owner and president of an Alberta permit and inspection outfit.

That spring, Mr. Booth’s long-time business partner, Steve Dobler, had an idea for a new investment: a small medical marijuana grower in the tiny village of Cremona, just northwest of Calgary, called Releaf. Mr. Booth thought he was joking.

But Mr. Dobler pressed the issue. Releaf was producing cannabis in a barn for a few patients and it was looking to grow as a new legal regime was about to come into effect that would expand the medical market. Ottawa was on the verge of blessing a slew of new medical marijuana growers after court decisions forced patient access to the drug, and the Cremona startup was looking for some cash and advice.

Mr. Booth saw the potential, and he and his partner decided to find out more. But they did so in markedly different ways. Mr. Dobler, who now serves as Aurora’s president, ran a search on Google. Mr. Booth, on the other hand, embarked on what he calls “his pilgrimage.” He reached out to “people who know people who know people who know people” to see first-hand how Canadians grow, sell and use pot.

He wasn’t averse to sampling. At a stop at the Vancouver studios of YouTube channel Pot TV, Mr. Booth was offered a hit from an inhalation device called the Subliminator. “I’m not going to say no,” he explains. “You can’t say no to activists, whacktivists and advocates when they’re offering.”

It took a couple tries for Mr. Booth to get the Subliminator right. “You have to create the Dyson effect,” he explains. “The smoke has to go up in a turbo.” The effect? “I was just locked in a smile. I couldn’t speak.” Then, he says, he walked back to his hotel in the rain in a daze, phoned his wife and “laughed my ass off” watching the news.

On his months-long odyssey, Mr. Booth toured marijuana operations big and small, legal and illegal, and even some legal operations that abused the medical system by selling product on the side.

In Kelowna, B.C., he saw pot being cultivated in buried shipping containers. “I remember walking down and saying ‘Wow, this is cool,’ ” he recalls. “I was about to take out my camera and then one of the guys says, ‘No pictures!’”

The most important discoveries, though, were made in B.C. dispensaries. He didn’t find stoners inside. Instead, he saw sick people turning to the illegal market for relief. Inside, it was mostly the elderly using canes, walkers and wheelchairs to get around; patients in pain, battling diseases and out of other options.

“I wasn’t going to cut a cheque if this was for a bunch of potheads,” he says. “I validated in my own mind that this is truly a medicine. It was an eye-opener.”

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Sold on the medical marijuana business, he and Mr. Dobler each invested $3-million in Releaf and raised more cash from family and friends. By 2014, the company – which would later be named Aurora – was starting to build what would become its “Mountain” facility in Cremona. In February, 2015, Aurora was licensed to produce cannabis.

In its early days, Mr. Booth drew on the connections he’d made during his pot pilgrimage to cultivate customers in illegal B.C. dispensaries. The company also courted Alberta customers with a promise of same- or next-day delivery. But in order to really grow in Canada’s medical market, it needed to access a steady flow of patients.

Mr. Booth recognized the inefficiency of going door-to-door to pitch physicians and nurses about a product they weren’t necessarily familiar with, so he set out to acquire clients another way: by buying a pot-counselling service called CanvasRx Inc. Based within a chain of cannabis-focused clinics, the service offered advice to patients about strains of cannabis (individual brands paid to have their pot sold through CanvasRx).

CanvasRx had a patient base of about 10,000, through 17 clinics, most of them in Ontario. Purchasing it would give Aurora access to a sizeable chunk of the market – and an inside look at its competitors’ sales within that chain of clinics. But at the time, money was tight. Aurora was burning through cash as it ramped up production, and by early 2016, he was paying his 40 or so employees out of the bank account of his other business, the inspection company he co-owned with Mr. Dobler.

“I couldn’t raise $50 – except from my friends and family,” Mr. Dobler recalls. Lenders, such as banks, wanted nothing to do with the sector, and retail investors weren’t lining up around the block yet.

But then things started to change. New Prime Minister Justin Trudeau began to outline in 2016 his government’s plans to legalize the recreational use of the drug.

Hedge funds entered the fray and started writing big cheques to cash-starved growers such as Aurora. In exchange, the funds demanded concessions that made these trades a lot less risky than just buying shares in the open market. Much of Aurora’s cash has been raised by selling debt that could eventually turn into stock at a set price. The holder of the debt gets paid interest along the way, and either gets their money back or converts the loan into shares of a rising stock at a lower price.

In 2016, Canaccord Genuity Inc. led a $23-million financing at 40 cents per Aurora share. The deal was pivotal for both companies: It marked the first time a weed offering was brought to market by Canaccord, now a dominant investment bank in the space. And the money helped to finance the purchase of CanvasRx.

That fall, Messrs. Booth and Dobler lent nearly 10 million of their personal shares at no cost to an investor who was buying into two of Aurora’s convertible debt deals, according to regulatory filings. Borrowing stock lowers the risk for these investors because it gives them shares they can sell for cash to hedge against falling prices. Stock loans can be pricey and called back at a moment’s notice. These ones were free and long term. (The loans are still outstanding, almost two years later.)

“Do I like the fact that I had to lend my shares to them? No,” Mr. Booth concedes. “But it was all legal and that’s what they needed. It’s insurance on the price of the stock – in case the market crashed.”

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By late 2016, marijuana shares were on a roll. Flush with some cash and fresh off the CanvasRx deal, Aurora’s prospects were brightening. But, behind the scenes, its only production facility was in total disarray. Over the course of six harvests, the firm’s cultivator had watched their yields tank, from 45 grams per plant to 20 grams.

A maintenance worker who’d spotted rusty valves in the growing rooms had ripped them all out and ordered new ones, but replacements couldn’t be delivered for six weeks. In the meantime, Aurora’s pot plants lost a much-needed carbon dioxide supply. Making matters worse, its crops also had thrips, little bugs that can damage plants by blocking light from penetrating during photosynthesis.

It took at least four months to clean up the mess and reach previous production levels. (Since then, it has improved yields at its various facilities further – in some cases, it’s getting 100 grams a plant.)

Many of Aurora’s strains sell quickly, Mr. Booth says. “When we put our Ghost Train Haze, our L.A. Confidential and our Catatonic on our shelves, it’s gone,” he says, naming three of Aurora’s most popular strains of plants. In keeping with his penchant for hyperbole, he added that Aurora’s plants are “healthy, big, thick” and way better than what Ontario-based rivals Canopy and Aphria Inc. offer to patients. “They’re not where we are in the grow.”

This is a small taste of chest-pounding world of Canadian weed, where Mr. Booth – and to be fair, many other cannabis executives – are high on at least one thing at any particular time: hubris.

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It was an investment in Aurora’s biggest rival in the market, Canopy, that may have helped spark investor interest in Aurora itself – and ultimately, fund Mr. Booth’s future buying spree. Last October, global alcohol giant Constellation Brands Inc. bought a stake in Smiths Falls, Ont.-based Canopy, a signal of confidence in the cannabis sector that spurred a memorable, months-long rally in marijuana stocks.

Aurora’s shares more than doubled in price in a matter of weeks as new investors rushed in. Emboldened by the rise, Aurora made an unsolicited bid for CanniMed that quickly turned hostile, a battle that Aurora would win by January but one that proved costly because the deal was struck at the top of the market. But Mr. Booth didn’t stop there, again using his stock in May to acquire MedReleaf.

The acquisitions fuelled a growing rivalry between Mr. Booth and Canopy CEO Bruce Linton, who made it clear in interviews that he wasn’t pleased to see Aurora benefiting from the Constellation deal. When the MedReleaf acquisition was announced in May, the sector’s biggest deal to date, Mr. Linton said it was like spending “a dollar to buy a dime.”

Mr. Booth counters the snipe with characteristic swagger. “You don’t think the other [licensed producers] were after MedReleaf? Of course they were,” he says, singling out one in particular: Canopy. “C’mon man, you were in the game but you fell short. They didn’t like you as much as they liked us. We were a better fit.”

For his part, Mr. Linton says he’s not looking to buy any more Canadian growers. “I don’t wish to have the distraction of trying to integrate disparate assets when the biggest game’s starting,” he says. “Our big race is to make sure that we ship all the products to all the provinces who said they want it.”

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Canopy has been busy signing agreements to supply government-run store operators with 25,000 kg of non-medical pot a year, announcing deals with three Maritime provinces, Quebec and the Yukon. It’s also planning to operate its own stores in provinces where it is legal to do so, such as in Manitoba.

In its bid to keep pace, Aurora has also signed a deal with Quebec, which has asked Aurora to earmark a minimum of 5,000 kg a year of cannabis to fill its stores.

So far, Canopy’s leads the industry in terms of production and sales, with 34,569 kg harvested since 2015 and $110 million in recorded sales, compared with 7,000 kg and $62-million for Aurora.

But these growers aren’t stopping at the Canadian border. They have their sights set on conquering the world by making inroads in countries that are now legalizing medical marijuana. It’s how they justify their outsized valuations, and why they say they won’t be dampened by falling prices at home, should legal supply exceed demand in the years to come.

Mr. Booth’s goal, however, isn’t just to be a big cannabis producer; it’s to own a slice of the supply chain. That’s why he’s bought so many pot-industry companies. But that’s where the integration issues could arise.

“It’s a significant amount of cultures and operations to integrate under one umbrella,” warns Mr. Zandberg, the analyst.

To tackle this tall task, Aurora is relying on André Jérôme, who joined the company this February after Aurora bought his company to lead its integration efforts. Mr. Jérôme is a lawyer who spent decades in the telecom industry, helping giants like Vodafone integrate their acquisitions. “I used to worry about it a lot,” Mr. Booth says. “I don’t worry about it as much, now that we have the team.”

Mr. Booth admits the cultures at CanniMed and Aurora have clashed. CanniMed is a “regimented company that did everything by the book and never changed,” he says. He’s assured investors that the MedReleaf transition will be smoother.

Canada’s largest marijuana growers are each known for something. Big and first, that’s Canopy. Leamington-Ont.-based Aphria is setting the bar for growing cheaply. Aurora is the acquirer, led by a storyteller. And MedReleaf, known for nurturing a patient base that’s willing to pay more for its bud, is a big opportunity for Aurora. It has registered revenue of $94-million from selling about 9,100 kg of pot, of which every gram was grown by MedReleaf.

Aurora has been rushing to add more growing capacity as part of its international push. A race is under way to establish a global presence before the U.S. moves to ease restrictions that have thus far kept most global behemoths in the world of pharma, alcohol, packaged goods and retail out of the marijuana sector.

But right now, Aurora says it is having trouble keeping up with demand from Canadian patients alone. It’s counting on supply from CanniMed and is expecting its 40,000-square-foot facility in Quebec to be issued a sales licence within weeks.

Next up is Sky, the new Edmonton facility, but there are still doubts about the grow-op. It’s behind schedule – the first harvest will occur this month but it was supposed to take place early this year – and slightly over budget. Then there are worries about quality.

Aurora chief corporate officer Cam Battley admits that three analysts in one week recently told him they heard from speaking with unnamed rival growers that Sky has to be torn down because the cannabis is being polluted by jet fuel and stunted by structural vibrations, caused by being so close to the runway, claims that Mr. Battley says are “demonstrably not true,” adding that, “These are active attacks on us and I think I know why: We’re shaking things up and making people nervous.”

Sky’s next test will come in mid-July, when Aurora is scheduled to host analysts and investors for tours. Then, the market will be waiting to see how long it takes Health Canada to issue a sales licence. Proving that Sky actually works should quell fears about two ongoing and even bigger construction projects by Aurora, one in Medicine Hat, Alta., and another in Denmark.

“The best answer to the rumours is just opening up Sky,” Mr. Battley says. “Nobody’s going to be able to throw any criticisms at us once we show them the product we are producing.”

For Mr. Booth, questions, doubts and criticisms come with the territory. After all, settling for second best isn’t his style.

“We’re all these trailblazers, knocking down these doors,” he says. “When you’re the one knocking down the doors, you know why they were knocked down. It’s different than just coming through it afterwards; you didn’t even know there was a door there.”