Job security for pot sector executives getting precarious amid stocks’ crash

NEW YORK The cannabis industry’s management exodus is gaining steam.

Since the beginning of January, at least five pot companies have announced the departures of their chief executives or a substantial chunk of their senior executive team.

The exits have affected both Canadian and U.S. operators.

It’s not surprising to see executive turnover in a struggling industry, of course.

The average 2019 stock decline of the five companies was 63 per cent, similar to the sector as a whole, and many of them are facing a cash crunch amid mounting quarterly losses and wary capital markets.

However, the management upheaval seems to only be exacerbating investor concerns.

Since their announcements were made, Supreme’s stock is down about 23 per cent, Flowr has lost 7.6 per cent and Sundial has tumbled a whopping 53 per cent.

As CIBC analyst John Zamparo said of Sundial’s departures: “Such transitions rarely predict positive near-term performance.”

There will likely be more executive departures as the turmoil in the cannabis industry continues.

“I think there’s definitely going to be more bumps in the road for 2020,” said Korey Bauer, chief investment officer of Foothill Capital Management and portfolio manager of its Cannabis Growth Fund.

“We’re going to have a few companies that are going to dominate and you’re going to see everybody else just left behind.”

It’s a tough time to be a cannabis company but the broader sector outlook isn’t nearly as bad, according to a new report published by pot data firms Arcview Market Research and BDS Analytics.

“The legal cannabis industry has always lived with a split between reality and perception, but never has the gap yawned as wide as it did in 2019,” the report said.

While stocks were tumbling, consumer spending jumped 46 per cent in 2019 to US$14.9 billion.

That number is expected to nearly triple to US$42.7 billion by 2024, according to Arcview and BDS.

“While valuations of public cannabis stocks may indeed have gotten ahead of themselves in the wake of Canada making history in October 2018 by legitimizing legal cannabis on the world stage, the subsequent sell-off looks extreme from the mid-point of a two-year period in which a US$10.2 billion 2018 market appears on track to more than double to US$20.7 billion in 2020,” the report said.

We’re going to have a few companies that are going to dominate and you’re going to see everybody else just left behind.