With Bruce Linton Gone, Canopy Growth Plots A New CourseJuly 9, 2019
With the firing of Canopy Growth co-founder and CEO Bruce Linton last week, the emerging cannabis industry could be entering a new phase in its development. Linton was terminated following an annual earnings report deemed unacceptable by 38% shareholder Constellation Brands, which noted an $828 million decrease in the fair value of its Canopy investment in its first quarter ended in May.
Linton provided both the guiding vision and an outspoken public face for Canopy Growth since founding the company in 2013. With his departure—a search for a permanent successor is in the works—the strategy of the world’s largest cannabis firm is likely to undergo major change in the months ahead. Upping the stakes is the fact that Canopy—and every other Canadian cannabis company—is gearing up for the launch of edible and drinkable cannabis products in the market later this year, potentially providing access to millions of new consumers interested in the category but wary of smoking.
Constellation took its initial 9.9% stake in Canopy in October 2017, and followed up last August with its blockbuster investment of $4 billion. With that move, Constellation gained four seats on Canopy’s board, and its influence has only continued to grow this year, with the appointment of Constellation veteran Mike Lee as Canopy’s acting chief financial officer in late May.
All the while, Constellation’s investment has fueled a relentless acquisition spree at Canopy. Among the moves was a $600 million purchase of Hiku Brands, the parent company of the Tokyo Smoke retail brand, last summer; a $328 million play for Colorado-based Ebbu last October; and a $169 million buy of German vaporizer company Storz & Bickel in December. All of those purchases, however, were dwarfed by Canopy’s recent plan to acquire Massachusetts-based Acreage Holdings for $3.4 billion pending federal legalization of cannabis in the U.S. Meanwhile, Canopy has continued to build out its grow operations in Canada, which it expects to yield 34,000 kg of dried flower in the coming quarter.
Linton was adamant that these and other investments would secure the company’s position at the top of the industry for years to come. Indeed, Canopy remains the most valuable cannabis company worldwide, with revenues nearing $200 million in its recently ended fiscal year. But its lack of profitability has now begun eating into earnings at Constellation, which took a $106 million loss on the investment in its first quarter ended in May, prompting the drinks giant to urge a change of direction.
“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,” said Constellation president and CEO Bill Newlands on the company’s recent earnings 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.”
Canopy’s next permanent leader will be tasked with balancing forward-looking investments of the type Linton pursued with a sharper focus on quarter-to-quarter profitability—while also looking to seize opportunities in the edible and drinkable cannabis segment that could significantly widen the category’s audience and prompt a new growth surge for the industry.—Danny SullivanSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning. You will also receive the Cannabis edition as part of your subscription.