A massive shake-up at the top of one of Canada’s leading cannabis companies occurred on July 3 when Canopy Growth Corp. (TSX:WEED) (NYSE:CGC) terminated its co-Founder, co-CEO, and Chairman Bruce Linton.
“Creating Canopy Growth began with an abandoned chocolate factory and a vision,” Linton said in the press release. “The Board decided today, and I agreed, my turn is over.”
The departure caused Canopy’s share price to fall by 6 percent. Rich says he is “shocked” by the decision to terminate Linton, who he calls the Michael Jordan of the cannabis sector.
“The Chicago Bulls never fired Michael Jordan,” says Rich. “In my opinion this is a huge mistake for Canopy Growth, this is a sad day for the sector, and I don’t feel good about it.”
Linton Made Canopy an Industry Leader, But Investors Weren’t Happy with Spending
Linton has been a key component of Canopy Growth’s success since co-founding the company in 2013. Before long, it became the first publicly traded cannabis company to list on both the Toronto and New York stock exchanges.
Earlier this year, Canopy made plans to acquire Acreage Holdings (OTCQX:ACRGF) on the condition that cannabis becomes federally legalized in the US, a move that prompted Rich to celebrate Linton as the “CEO of the century.”
“Bruce Linton, the CEO of the century, has taken this stock from under $1 to where it is today at over $64 CAD,” Rich said back in April.
Linton also took part in negotiations for a $5-billion investment from Constellation Brands (NYSE:STZ), the largest beer import company in the US, to help Canopy become a first mover on cannabis-infused beverages.
It’s this deal—which gave Constellation a 38 percent share in Canopy—that Rich says led to Linton’s termination, as it gave Constellation “too much control.”
“Bruce Linton’s been so focused on growth he hasn’t really been focused on making money,” says Rich. “Constellation Brands put the money into the company, Bruce was spending that money, Constellation Brands wasn’t happy that he was spending that money.”
Though Canopy’s net revenue was up more than 300 percent year-over-year, Constellation CEO Bill Newlands didn’t try to hide the fact that he was unhappy with Canopy’s $323.4 million CAD net loss in Q4. This, combined with slightly reduced sales for both medical and recreational cannabis in comparison to last quarter, caused Constellation to look for new management at Canopy.
“In my opinion, this is Constellation Brands looking at this and saying, ‘We want a person that’s a CEO that’s going to be concerned about spending,’” Rich explains.
Rich Says it Isn’t Time to Panic
While Rich says the decision to oust Linton from Canopy Growth means he won’t “look at Canopy the same anymore,” he’s not ready to give up on the cannabis giant quite yet.
“I am not excited about this, but I don’t think it’s the time to panic,” he explains.
“I think Constellation Brands clearly has a plan. They probably want a CEO that’s going to be more fiscally responsible … that’s going to be more focused on building a very profitable, revenue-generating company.”
In a conference call last Friday, Newland said that Constellation will be working with Canopy to ensure that the company is focused on a way to get “ultimate profitability for that business in an appropriate time frame.” He added that he remains excited about the company’s long-term potential, citing the deal to acquire Acreage as a way to put Canopy in “a leading position” in the cannabis industry. Constellation will also oversee Canopy as it enters the CBD market in the US and works towards introducing vapes, edibles, and beverages to the Canadian market.
According to a statement, Mark Zekulin will now take over as sole CEO of Canopy and will work with the board to find a new leader for the company’s next phase of growth. Despite the initial drop, Canopy Growth has recently seen its stock rally to pre-announcement numbers.
While Rich notes that Linton helped build Canopy into a “global powerhouse,” he adds that the change in leadership might ultimately lead to a brighter future.
“Could it make the company better?” he asks. “Absolutely.”
Featured image: Canva