With Bruce Linton suddenly out as co-CEO at Canopy Growth Corp., analysts and investors are already speculating about who will be tapped next to lead the world’s largest cannabis company.
Canopy announced early Wednesday that co-CEO Mark Zekulin will step into a sole leadership role on an interim basis while the company begins an executive search that will be open to “internal and external candidates,” according to a news release.
Zekulin told Bloomberg he doesn’t plan to stay in the position permanently, however.
As details of Linton’s abrupt departure resonate across the industry, here are the most immediate takeaways investors should note:
Linton’s ouster, while speedy, wasn’t surprising to most analysts who cover Canopy closely.
“Since Bruce co-founded this business years ago, it has evolved into a global cannabis leader,” Jesse Pytlak, an analyst at Toronto-based Cormark Securities, told Investor Intelligence.
“And at some point, you really need leadership with a more appropriate set of skills that can foster the next phase of growth.”
Under Linton’s watch, Smiths Falls, Ontario-based Canopy has expanded into more than a dozen countries, spanning from Canada to South America and the United Kingdom.
In the United States, the company is charting a path for major hemp operations and recently inked a $3.4 billion deal to eventually acquire cannabis giant Acreage Holdings.
But as Linton executed on his ambitious expansion of Canopy, losses have also grown. In its most recent quarter, the company recorded a $335.6 million loss – up from red ink of $61.5 million a year earlier.
The performance disappointed Constellation Brands, Canopy’s largest shareholder.
“Constellation is getting pressed by analysts on whether the targets set for Canopy are achievable,” said Andrew Kessner, an analyst with New York-based William O’Neil.
“A lot of investors I’ve talked to saw the spending at Canopy to appear a bit out of control, and I think they’re more reassured that will it get reined in.”
Constellation at the Helm
If there’s one clear signal coming from Linton’s removal, it’s that Constellation – which holds four of the seven board seats at Canopy – is in the driver’s seat.
“The board decided (Wednesday), and I agreed, my turn is over,” Linton said in a statement.
As the executive search for Linton’s replacement gets underway, it’s Canopy’s board that will lead the charge.
“They’re looking for someone with international experience that has grown a business globally,” Cormark’s Pytlak said. “Very likely someone in the established (consumer packaged goods) industry – perhaps from consumer staples, tobacco or alcohol and beverage.”
That could very well be someone that’s already in the Constellation network, he noted.
In May, Canopy’s board appointed Mike Lee, a veteran Constellation executive, to serve as the firm’s new chief financial officer.
“I think we’re going to continue to see Canopy upgrade its C-suite as it becomes more U.S. and internationally focused,” Pytlak said.
“The company is just at that inflection point that it needs a more appropriate bench for where it’s headed in the five to 10 years.”
On news of Linton’s exit, Canopy’s stock (NYSE: CGC) saw a slight bump with high trading volume.
Just ahead of the market’s close, shares were up 2.5% to $41.06.
“There are a lot of people getting in and a lot getting out today,” Kessner said. “I think this shows the beginning of a shift in the investor base.
“It’s clear Constellation is going to be in control of the reins at this point, and I think institutional investors and those who were pushing for more financial discipline are getting more interested.”
As the industry continues to mature, investors can expect to see more C-suite shifts at firms looking to lure the talent needed to grow globally.