What’s Next for This Marijuana Stock Behemoth and Its Visionary Founder?
Marijuana Business, Stocks, Finance, & Investing August 1, 2019 MJ Shareholders 0
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 as to what the future holds for both the visionary who took a defunct chocolate factory and turned it into a multi-billion-dollar global empire and the company he helped build.
CGC stock has hardly been on an upswing since Linton got the axe. Many analysts (myself included) believe it to have been a premature and dramatic move, and one that is going to impact the future of CGC stock. That view seems to be held by investors as well, with the company 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 industry as a whole has entered into 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 do believe that firing Linton at this time is only 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 the company’s 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 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 certainly played a central role in much of its success.
Would marijuana 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), a “Big Alcohol” company, wanted to see profits sooner, whereas Linton was focused on expansion (or at least that’s the story being told).
Constellation had earned a CA$1.7-billion profit on its 38% stake in the company by April. It did suffer a CA$74-million loss in its most recent quarter, which is why many believe that Linton was jettisoned. Canopy, for its part, is claiming that it is in need of 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.)
Whatever the truth may be, many view this as a premature move that will only hurt the company long-term. 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.
The next major event for CGC stock will come August 14, with the release of its next quarterly report. If it shows profits, expect shares to climb, but overall, I’m far less bullish on CGC stock than I have been in a while.
Bruce Linton & Future Marijuana Stocks
Now let’s take a look at where Linton himself 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 anyways.
“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,” Linton said. “You’re going to end up with a few winners and a whole bunch of people who wonder why they started.” (Source: “‘Canada is done’: Bruce Linton likely to pop up in U.S. cannabis industry following Canopy exit,” Financial Post, July 8, 2019.)
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 also believe that wherever he should land, expect to see shares rise upon the announcement of his arrival.
Now I’m not saying he’s some wunderkind that can summon gains from nothing, but I do believe that he is an asset that can help the right company in the right situation reach higher gains due to his presence. For investors’ sake, I hope Linton finds that opportunity.
Much like stock investing itself, running a business can be all about timing. From knowing when to pull the trigger on an expansive acquisition to knowing when is the best time to shelve growth in favor of profits, it’s a delicate balance that is hard to strike.
In this case, I believe that Canopy Growth Corp erred with its ejection of Bruce Linton and has gone too much in on profits in the near term. As a result, while I still have a positive attitude towards CGC stock, its light has been dimmed by Linton’s leaving.
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