In Smiths Falls, a nascent sense of foreboding
Not quite 40 days after Bruce Linton was unexpectedly dismissed as chief executive of Canopy Growth Corp., uncertainty over the company’s next moves is undiminished. The big question is whether the firm’s most important investor — wine, beer and spirits giant Constellation Brands — will insist on a slowdown in hiring and capital investments.
Canopy Growth this Wednesday is scheduled to publish its financial results for the three-month period that ended June 30. While the period in question covers Linton’s final stretch in charge of the firm’s operations, the real focus will be on insight provided by interim CEO Mark Zekulin about future quarters.
From Canopy Growth’s inception six years ago in a former chocolate factory in Smiths Falls, Linton and Zekulin transformed a tiny startup into a sprawling multinational that sports a market value of $15 billion plus. The duo orchestrated a massive investment in facilities, hiring and acquisitions, including $250 million plus in the Smiths Falls headquarters.
On a Saturday morning, the results were clear. Construction crews were putting the finishing touches on a new bottling facility (for cannabis-infused drinks), a global distribution plant and expansions to the main administrative and adjoining buildings. An advanced manufacturing plant was in operation.
This suggests the initial, frenetic phase of expansion is finally winding up.
Even so, with Linton’s exit and Zekulin’s temporary status as replacement CEO, there is in Smiths Falls a sense of foreboding — tiny for the moment, but it’s there.
You can see it in the town’s cautious approach to development. Although Canopy Growth now employs more than 1,000 in Smiths Falls, compared to 3,200 worldwide as of March 31, the hiring boost has not produced what you might call an economic boom, even in areas closest to the company’s main campus. There’s a new Boston Pizza at the Settlers Ridge mall, but not much else. Most of the mall, a casualty of the 2009 recession, remains empty. A plot of land across from the mall is being prepped for housing, but no buildings are going up yet.
Entrepreneurs such as Andrew Cinnamon, head of Park View Homes, have launched new housing developments in the west end of town, but the take-up has been measured. Cinnamon began marketing the first of a proposed five phases of town houses and single-family residences early this year and has sold 15 to date at prices beginning at $289,900. Not bad for a relatively small town of 9,000. The marketing produced some surprises. A number of inquiries came from Toronto and Ottawa investors, not local residents. These prospective buyers had one eye on the relative shortage of rental properties in the Smiths Falls area and were planning to rent out.
Indeed demand for rental accommodation throughout the town is also fuelled by the fact many of Canopy Growth’s newer employees are young, so they haven’t saved much yet for down payments. Nor are wage rates or salaries in the cannabis industry especially strong.
More generally, local real estate professionals wonder whether Linton’s exit will weaken the Smiths Falls housing market somewhat. Linton, after all, had been a great champion of the area. Now that effective control of Canopy Growth has passed to Victor, N.Y.-based Constellation Brands, will the Smiths Falls operation remain secure?
Ordinarily you could dismiss such negative thoughts. A tour of the Smiths Falls plant reveals a gleaming, state-of-the-art cannabis production line. The company has also invested tens of millions of dollars in software and supply chain management technology. It’s very difficult to imagine Constellation Brands would one day write off this massive investment and move it elsewhere.
And yet Smiths Falls remains very much scarred by its experience with Hershey, the U.S.-based chocolate maker that served for decades as the town’s key employer until one day, nearly a decade ago, it simply left.
Competitive global enterprises must constantly refresh their technology to stay relevant.
Constellation Brands invested $5.1 billion to acquire 37 per cent of Canopy Growth’s equity. It has an option to invest an equivalent amount more. If exercised, that move would give Constellation Brands nearly half of Canopy Growth’s ownership. Even for a corporation the size of Constellation Brands, that’s significant money. If its leaders believe for a moment the Smiths Falls operation represents a long-term risk, perhaps because it can’t attract the right kinds of skills in the right quantity, there’s little doubt it would move to head off the danger. The U.S. firm could do so by investing in facilities elsewhere or by trying to shore up the Smiths Falls investment.
Either way, it’s almost certainly too early to contemplate such gloomy options, though that won’t stop some Smiths Falls residents from dwelling on their unfortunate history with U.S. multinationals. Perhaps the company will ease their fears this Wednesday.