Canopy CEO fired amid pot giant’s tepid results
Surprise move indicates ‘frustration’ of investors, desire for change, analyst says
The surprise ousting of the chief executive of Canada’s foremost cannabis company is a sign of things to come, some observers warned Wednesday, as the young industry grapples with investor impatience in the face of what have so far been disappointing financial results.
Canopy Growth Corp. announced early Wednesday that Bruce Linton, who founded and grew the firm from an abandoned chocolate factory in Smiths Falls, Ont., into the world’s most valuable cannabis company, was “stepping down” from both his role as co-CEO and as a member of the board.
But in multiple media interviews, Linton said he had effectively been terminated by the company’s board of directors — a majority of which had been appointed by Canopy’s largest investor, the U.S.-based alcohol giant Constellation Brands, which took a $5-billion stake in the company last year.
In a recent conference call, Constellation Brands’ newly-appointed chief executive officer Bill Newlands noted that he was “not pleased with Canopy’s recent reported year-end results,” which saw the cannabis company post a net loss of $670 million over the last year.
“I think there has been some frustration from their biggest shareholders that Canopy has not been producing the kind of numbers that everyone was expecting and things needed to change. I think we’re going to see a lot more executive changes across the industry going forward,” said Greg Taylor, chief investment officer of
There needs to be a focus on operations. Your products have to be up and running and good.
Purpose Investments, which runs the Purpose Marijuana Opportunities Fund.
The fund divested from Canopy Growth earlier this year, due in part to concerns that the company was struggling to grow at scale at some of its biggest greenhouse facilities in British Columbia and Quebec.
The scale-up challenges were reflected in Canopy’s most recent quarterly earnings, which saw the company write down $24 million in operating expenses for greenhouse facilities that were “not yet cultivating, cultivating but not yet harvesting, or had under-utilized capacity.”
Linton has long argued that his growth strategy for Canopy was a long-term one — multiple international acquisitions of “key intellectual property and brand assets” would enable Canopy to cement its position as a global leader in the cannabis space.
Over his tenure at the company, Linton orchestrated countless mergers and acquisitions, including Constellation’s entry into the cannabis space, a $150-million investment to build a hemp facility in New York State, and most recently, the $3.4-billion option to purchase multi-state operator Acreage Holdings, the largest American cannabis company by market value at the time.
“The next wave is going to come, and we’ll be way at the front,” Linton told CNBC’s Jim Cramer a day after Canopy announced the Acreage deal, and less than three months before being fired by the company’s board.
But Canopy’s spending habits, and promises of future returns left investors — including Constellation — increasingly uneasy.
Since the end of April, the company’s stock has declined by approximately 23 per cent, with a large chunk of that value-erosion taking place in June, immediately after Canopy announced its first quarterly earnings that reflected a full three months of recreational cannabis sales.
The results were much weaker than expected.
Neil Selfe, a longtime friend to Linton and financial adviser to Canopy in both the Acreage and Constellation deals characterized Linton’s ouster not so much as investor impatience but a move by Constellation’s new CEO to “put a mark on both Constellation and Canopy.”
“To me, what happened today is nothing more than the new CEO wanting to put his own imprint on Canopy,” Selfe reiterated.
Canopy rival Aphria Inc. saw its two co-founders and former chief executive leave the company earlier this year, after a short-seller report alleged that the Leamington, Ont.-based company had over-valued some of its international assets.
CannTrust’s former co-founder and CEO Eric Paul stepped down just weeks before legalization, only to be replaced by former bank CEO Peter Aceto.
Aurora Cannabis too, recently appointed billionaire U.S. investor Nelson Peltz as a “strategic adviser” to the company.
“Look, the industry needs to mature. These people founded companies on the concept of cannabis legalization, and now it has actually happened, so there needs to be a focus on operations. Your products have to be up and running and good,” Taylor said.
“All these companies are now going to have to look at their management and see if they are actually up for this task of delivering the goods.”