Canopy Growth Quarterly Report
In what has perhaps been the most unexpected turn of events as far as marijuana executives go, Canopy Growth Corp (NYSE:CGC) co-founder and CEO Bruce Linton was fired several weeks ago. The question now remains what the future holds for the visionary who took a defunct chocolate factory and turned it into a multi-billion-dollar global empire—and for the company he helped build.
CGC stock has hardly been on an upswing since Linton got the axe. Many analysts (myself included) believe that his dismissal was a premature and dramatic move, one that’s going to hurt Canopy Growth stock. That view seems to be held by investors as well, with the stock having posted a loss of 17% over the past month.
Chart courtesy of StockCharts.com
Now to be fair, the recent misfortune of Canopy Growth Corp isn’t all due to Linton’s departure; the pot industry as a whole entered a prolonged correction, having had a tough go of it this summer.
This correction was long predicted and isn’t anything out of the ordinary for the pot business. Having said that, I believe that firing Linton at this time is going to exacerbate the losses that CGC stock is going to face.
After all, with confidence already low due to the correction, this is hardly the time you want to make a big shakeup at the upper echelons of your company when no one is really calling for such a move.
It’s especially inadvisable considering that the company’s former CEO is one of the most recognizable and respected names in pot.
Linton, you’ll recall, hobnobbed with bigwigs at the World Economic Forum and was there for the first ever marijuana presentation to some of the most powerful people in the world. It’s not outrageous to say that Linton helped make the legal marijuana industry what it is today.
Now, I don’t think he’s some luminary who summoned the pot business from the ether, but he is an important part of the industry’s history and he certainly played a central role in much of its success.
Would the marijuana sector have grown to the heights it has without Linton? Maybe, but the point is that he was a major force in getting it to this size as fast as it did. He deserves credit for that, and he is getting it.
Now comes the reasoning behind the termination: Constellation Brands Inc. (NYSE:STZ), an alcohol company that has a large stake in Canopy Growth, wanted to see profits sooner, whereas Linton was focused on expansion (or at least that’s the story being told).
Bruce Linton was adept at branding and expansion, and he was clearly positioning Canopy Growth Corp to be a long-term winner as it dominated more and more of the global market. Constellation Brands, meanwhile, seems content to settle for the sizable market share it has right now, even if it is a pittance of the total global pot market.
Constellation had earned a CA$1.7-billion profit on its 38% stake in the company by April. Canopy Growth, however, suffered a CA$74.0-million loss in its most recent quarter, which is why many believe that Linton was jettisoned. Canopy, for its part, is claiming it needs a new leader for the next phase of its growth. (Source: “Canopy’s CEO wasn’t really fired because of lost profits — there’s an interesting backstory here,” The Toronto Star, July 15, 2019.)
The next major event for Canopy Growth will be on August 14, with the release of its next quarterly report. If the company shows profits, expect its shares to climb, but overall, I’m far less bullish on CGC stock than I have been in a while.
Bruce Linton’s Future
Now let’s take a look at where Linton may land.
He currently has a no-compete clause in terms of marijuana companies in the Canadian market, but that doesn’t preclude him from other global markets. And it doesn’t seem like he’s overly fond of the Canadian marijuana market anyway.
“Anybody who’s dumb enough to launch a new cannabis company in Canada, I don’t know what they’re doing, they should have been at it six years ago. Canada is done,” said Linton in July. (Source: “‘Canada is done’: Bruce Linton likely to pop up in U.S. cannabis industry following Canopy exit,” Financial Post, July 8, 2019.)
“You’re going to end up with a few winners and a whole bunch of people who wonder why they started.”
Linton is still a valuable executive who could play a huge role in the development of a new marijuana company in other markets—say, the U.S., for instance.
His name still has weight and respect to it. I would value any company he joins a little bit higher due to his presence. I believe that, wherever he lands, we can expect to see that company’s shares rise after the announcement of his arrival.
Now I’m not saying he’s some wunderkind who can summon gains from nothing, but I do believe he is an asset that can help the right company in the right situation achieve higher gains. For investors’ sake, I hope Linton finds that opportunity.
Much like stock investing, running a business can be all about timing. From knowing when to pull the trigger on a big acquisition to knowing when the best time is to shelve growth in favor of profits, there’s a delicate balance that’s hard to strike.
In this case, I believe that Canopy Growth Corp erred with its ejection of Bruce Linton and is focusing too much on profits in the short term. As a result, while I still have a positive attitude toward CGC stock, its light has been dimmed by Linton’s leaving.