CEO and chairman Bruce Linton knew he was in trouble when the marijuana company's board met without him last Friday.
"An unexpected board meeting is called, one must not wonder," said Linton early Wednesday at CNBC. "If I'm a leader and I'm not calling the meeting, I suspect it's about the chairman." On Wednesday morning, Canopy Growth reported that Linton went down, effectively immediately, with co-director Mark Zekulin, who took responsibility.  Baldakin has stumbled repeatedly this year, and those disappointments obviously managed to patience
(ticker: STZ), the US alcoholic beverage business that plunked $ 4 billion for a 38% stake in Canadian cannabis producer.
Canopy did not respond to a request to discuss Linton's departure, and Linton could not be immediately reached. But Constellation – as Wall Street advocated the change – said in a statement that it fully endorsed the Canopy Board's decision to appoint Zekulin as the sole CEO.
"The future of Canopy Growth is still very bright," said a Constellation spokesman, "and we look forward to the company's continued success for many years to come."
The quarterly sales volume of Canopy was lower than in December, while operating losses ballooned. Canopy's agreement to purchase the US marijuana chain Acreage Holdings (ACRGF or ACRG.U.Canada), on an indefinite future date, fell $ 300 million in rounds of shareholders without visible means of enforcing a future acquisition. Incorrectly calculated spreadsheets were still in use at Canopy to calculate inventory and operating profit, the company in its latest financial report, more than two years after the company warned investors that the practice was a "material weakness".
Read our latest interview with Bruce Linton : Canopy Growth's CEO of Slow Marijuana Sales and Promise of Cannabis Drinks
Investors seemed pleased with the management's transition. After beating 5% Wednesday morning at the news, the Canopy Growth stock market (CGC) closed the holiday charter trading day up 2.3%, to $ 41 per share, before a 0.8% gain for
Nevertheless, the Canopy stock is down 20% since April. Almost a year after Constellation's bold efforts on the marijuana business, the Constellation share is flat, at $ 199 per share.
In its own business, Constellation has bounced the beer industry's ebb by increasing sales of brands such as Corona. But revenues have been diluted by Canopy's larger than expected losses. Constellation own institutional shareholders may have been troubled by Canopy's swelling losses, especially after marijuana rival
(ACB) announced it soon expects to show positive cash flow.
Constellation Brands CEO Bill Newlands sits on the Canopy Board with three others tied to the beer brewery, and Newlands expressed his annoyance to the public at Constellation's revenue interview in June. The Constellation had just reported a $ 39 million loss from its Canopy stake.
"We weren't happy with Canopy's recently reported annual results," Newlands said.
Canopy installed a new CFO this year: Mike Lee, a alum of Constellation's finance group.
Then Linton was out.
"We're not surprised at this move," Cowen's bullish analysts Vivien Azer and Gerald Pascarelli wrote in a note. "The size of the losses for [Canopy] has expanded far more than we expected."
Constellation's claim for control over Canopy had been predicted last year by Mitch Baruchowitz, who runs cannabis-focused private equity firm Merida Capital Partners.
"When you write a $ 4 billion check, you have certain expectations," Baruchowitz told Barrons Wednesday. When the Canopy share flies, Constellation didn't mind Linton's stand-alone ways with the US company money. But lately, he said, Canopy seems to have been a burden on the market's perception of Constellation's value.
A former technology company manager, Linton co-founded Canopy in 2013 as a business, so called Tweed. In the years leading up to Canada's legalization of recreation pot sales in October 2018, Linton helped establish the world's first legal marijuana industry. Canopy became the first pot company to list on the Toronto and New York stock exchanges, and the first to surpass $ 1 billion. When other cannabis companies were looking to collect millions of dollars from consumer packaged companies, Linton got half a billion and then $ 4 billion from Constellation. Since its market debut five years ago, the Canopy share has risen nearly 2,000% to appreciate Linton's $ 14 billion creation on Wednesday.
To support such generous valuations, cannabis companies must begin delivering cannabis products and positive cash flow, Jefferies analyst Ryan Tomkins said on a Wednesday note. He and his colleague Owen Bennett have had a Hold rating of Canopy Growth stock, due to the stock's three-digit multiple on the expected 2020 cash flow.
"Cannabis companies must show a route of profitability," Tomkins said. "We see valuations increasingly driven by financial delivery, and the names of inflated multiples that are unable to show improved bottom lines may be at risk of significant leveling."
In Canopy's announcement on Wednesday, the company said it would search for a permanent replacement for Linton. Most analysts expect the company to hire an experienced consumer from consumer packaging.
Linton doesn't expect him to shoot, he told CNBC, but said it could happen to contractors. "Sometimes entrepreneurs are entrepreneurs because they are not super employees," Linton said. "You don't always associate well with everyone in the game pen."
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