Canopy Growth (CGC) was the face of the cannabis industry for some time, until in my view, the company, under pressure from Constellation Brands, fired CEO Bruce Linton, causing the company to plunge in value, as well as put downward pressure on the cannabis sector in general.
At the time the company stated the reason behind the firing was because the company wanted to take a new direction concerning its growth strategy. That was primarily from the enormous spending spree of Linton that wasn’t producing any near-term results.
The last earnings report before his firing was the catalyst behind the change.
All that is well and good, but the problem is the company stated it was going to get a new CEO to replace the other co-CEO of Canopy, Mark Zekulin, but has dragged its feet in finding a replacement. It’s understandable that the right person needs to be found, and it should be the top priority.
At a time when Canopy Growth is scrambling to find its way, there is no one at the helm that is able to guide it. Consequently, the company remains in a holding pattern while its share price has been taking a beating.
Understanding the depth of the situation
To fully comprehend the issue here, it needs to be understood that Canopy Growth had been considered the leader of the cannabis industry at the time of the weak earnings report, and Bruce Linton was the face of not only Canopy, but the cannabis industry too.
So when Canopy reported its weak earnings, the industry as a whole suffered for it. And when Linton was surprisingly fired not long afterward, confidence in the sector plummeted.
That, combined with geo-political events that questioned the longevity of economic growth, resulted in people seeking safer assets to place their capital in. The cannabis sector, now perceived to be even more risky than it had been, took a big hit in the flight to safety.
Although I don’t think Canopy Growth will ever return to its market-leading position, it still should be able to remain in the top tier of the sector, albeit it probably at the lower end of the top tier over time.
For that reason, the company needs to get its act together with finding a CEO that can lead the company forward, otherwise it could further implode beyond what it has been.
Why I’m not optimistic
I think the major problem in finding a CEO to replace Linton comes from Constellation Brands. It appears the company has decided to take a much more modest approach to growth, and the type of CEO that would fit that bill would be much different than Linton.
Also, Constellation Brands has also taken a lot of flak from its shareholders because of having to write off millions as a result of its investment in Canopy Growth.
With the company culture that existed under Linton, I think it’s going to take a lot of time once a new CEO with a different vision, or more accurately, different marching orders from Constellation Brands, to turn things around. There will, in my opinion, be a lot of internal struggles to change from a high-growth strategy to one that is less ambitious.
Over time that may be the best for Canopy Growth, but in the near term, I expect the company to go through a lot more pain.
Since there is so much uncertainty surrounding what Canopy Growth is going to become under new leadership, it’s vital to me for the company to obtain its new CEO sooner rather than later.
The longer it takes to get that in place, the more the company is going to suffer. And if it reports another bad quarter, the market will punish it harder because of the lack of visibility concerning what type of cannabis company it’s going to be.
The point is anything negative is going to be magnified because of this uncertainty concerning the incoming CEO. This needs to be dealt with rapidly in order to minimize the pain.