An investment vehicle controlled by Curaleaf Inc.’s (CURA.CD) chairman owns nearly 12 per cent of Cura Cannabis Solutions Inc., the Oregon-based pot company that just sold its regulated marijuana oil business to the Massachusetts-based company in an all-stock deal valued at about $1.27 billion, sources close to the company told BNN Bloomberg.

Cura announced it sold its Select brand -- a cannabis oil product that is available in more than 900 dispensaries, including in California, the biggest pot market in the U.S. -- to Curaleaf on Wednesday. The combined company would have generated US$205 million in revenue in 2018, making it the largest U.S. marijuana operator by revenue, according to Curaleaf. It did not include Cura’s CBD oil business as part of the deal; that unit is expected to be spun out into a separate company, a Cura spokesperson told BNN Bloomberg.

In a release announcing the deal on Wednesday, Boris Jordan, Curaleaf’s chairman and initial investor, was described as having an “interest in the proposed transaction” but the stake his investment vehicle owns was not specified. Curaleaf’s special committee received a fairness opinion from Beacon Securities Ltd. regarding the proposed deal and stated it “is fair from a financial point of view,” the company said in a release.

However, Jordan also founded and is the main investment manager of Measure 8 Venture Partners, a venture fund with US$120 million in assets under management, which owns 11.5 per cent of Cura after first investing in the pot company about a year ago, a source told BNN Bloomberg. The stake represents about $146 million in Curaleaf stock following the deal’s announcement.

Curaleaf and Cura first began merger discussions a year ago after Jordan connected management between the two companies, but talks ended in June after a deal failed to materialize, the source said. Cura later returned to Curaleaf for a potential deal about two months ago, which resulted in Curaleaf forming a special committee comprised of three independent board members, the source added. Jordan was not involved with the special committee.

“We demonstrated best practices from an international finance standard, including setting up special committees, outside law firms and requesting three separate fairness opinions,” Jordan said in a telephone interview with BNN Bloomberg. Jordan also confirmed Measure 8’s investment in Cura.

Curaleaf’s proposed acquisition of a company whose chairman already owns a sizable stake is representative of a fast-moving industry where some principals have direct, material relationships with other companies and acquisition targets.

In December, Canadian cannabis producer Aphria Inc. was accused of insider self-dealing in a report released by short sellers Hindenburg Research and Quintessential Capital Management.

The report alleged that Aphria's then-CEO Vic Neufeld, who was also chairman of Liberty Health Sciences Inc. and holds shares in the company, invested in the Florida company during a private placement at prices that were significantly below a subsequent investment by Aphria into the firm. The report sent Aphria’s shares down as much as 50 per cent at the time, although they have recovered their losses since then.

Neufeld, who stepped down from his role running Aphria in March, wasn’t immediately available for comment and hasn’t been charged with any wrongdoing by U.S. and Canadian securities regulators.

Liberty Health said in February that an independent investigation has determined that the short-seller report accusing the pot firm of insider self-dealing and overpaying for certain assets is “materially inaccurate” and “should not be relied upon.” In a separate release, Aphria said in February a review by a special committee identified "conflicting interests" from certain board members that weren't properly disclosed during the acquisition of its Latin American assets.

Jordan said he recused himself from any acquisition discussions as soon as Cura approached Curaleaf for a potential sale.

“Even though the venture capital stake is small at 11.5 per cent, I am committed to making sure that everything we do at Curaleaf stands out as an example to the market as best practices,” he said.

If approved by regulators, the combined company would have a significant presence in 15 U.S. states and one million square-feet in cultivation space in 11 production facilities. During a conference call with investors Wednesday, Curaleaf executives highlighted the cost savings as a significant driver of the deal. The combined company would cut 50 per cent of Cura’s production costs and 25 per cent of its processing costs given Curaleaf’s existing operations.

Cura’s Select Oil is also a market share leader among marijuana oil brands in California, Oregon, Nevada, and Oregon, with at least 16 per cent of the market, according to BDS Analytics.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.