Canadian cannabis company Canopy Growth Corp stunned the market Wednesday with the news that its co-Chief Executive Bruce Linton is stepping down from his role and will leave the board.
which is the biggest cannabis company by market capitalization thanks to a $4 billion investment from Corona beer distributor Constellation Brands Inc.
said Mark Zekulin has agreed to be sole CEO and will work with the board to find a new leader, a task that will include internal and external candidates.
“Creating Canopy Growth began with an abandoned chocolate factory and a vision,” said Linton in a statement. “The board decided today, and I agreed, my turn is over.”
In an interview with CNBC, Linton acknowledged that he was ousted. “I was terminated,” he said in a telephone interview.
Asked what he will do next, Linton quipped that he had gone to Costco to fill his car with gas, “and I’ve got a long list of important stuff like that to do. I would hope by the end of day I’ve figure out what’s up next. And it won’t be in cannabis in Canada but there is a pretty big world out there,” he said.
Linton has been a very public face for Canopy and has given multiple interviews to publications across the globe telling the company’s story. Canopy was founded in 2013 and commands a market cap of almost $14 billion. Earlier this month, it won shareholder approval to acquire Acreage Holdings Inc.
a multi-state operator that will give it a foothold in the lucrative U.S. market as soon as federal laws are eased.
“Bruce has been a pioneer in the industry and it will be tough to see him go,” said Korey Bauer, portfolio manager of the Cannabis Growth mutual fund
launched by Foothill Capital Management.
Matt Hawkins, managing partner with private-equity firm Cresco Capital Partners, agreed.
Linton “was instrumental in developing the innovative, forward-thinking deal he crafted with Acreage, one of Cresco Capital’s early portfolio companies,” said Hawkins, whose firm is focused on the cannabis market. “We applaud Bruce for leading Canopy to become the largest publicly traded cannabis company by market value, and look forward to both his and Canopy’s future and the positive impact the company will continue to have on the sector.”
The news comes just weeks after Canopy’s fiscal fourth-quarter earnings disappointed investors as the company’s losses mounted and it sold less cannabis sequentially, in the second quarter of recreational cannabis legalization in Canada.
Constellation Brands, which has made a huge bet on Canopy, was not happy with Chief Executive William Newlands saying on the company’s earnings call last week that he was not pleased with Canopy’s numbers.
“While we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy’s recent reported year-end results,” Newlands said in the call. “However, we continue to aggressively support Canopy on a more focused long-term strategy to win markets and form factors that matter, while paving a clear path to profitability.”
For more on Mark Zekulin: Canopy Growth’s quiet co-CEO on the pot company’s ambitions in the U.S. and more
Constellation’s share of Canopy’s losses came to $106 million, or $78.2 million including tax benefits.
Constellation made its initial investment last year with the option to take a majority interest in the future. The two companies are working together on developing drinkable cannabis products, which are set to launch in Canada Dec. 16. To that end, Canopy has told MarketWatch in the past that the Corona maker is helping it design a bottling factory across the street from its Smiths Falls, Ontario headquarters and helps with due diligence when asked during acquisitions.
Bauer from the Cannabis Growth mutual fund said he expects Canopy will search for a big consumer packaged goods replacement.
“The success of Canopy and all cannabis companies will come down to brands,” he said. “Short-term this may be a negative but we already have seen the largest CBD company in the U.S. (Charlotte’s Web) name Adrienne Elsner as CEO.”
Elsner is the former president of the U.S. snacks division at Kellogg Co.
Shares fell 4% in early trade before recouping most of those losses. It was last down just 1.9%. The stock has gained 43% in 2019, while the ETFMG Alternative Harvest ETF
has gained 27%.
Constellation Brands stock was down 0.4% but has gained 24% in 2019.
The S&P 500
has gained about 19% and the Dow Jones Industrial Average
has gained 15%.
Additional reporting by Greg Robb in Washington, D.C.