Some of the leading companies in the cannabis space are feeling pressure to justify the huge valuations of their stocks. Just look at Canopy Growth (NYSE:CGC). Recently, the company announced that its co-CEO, Bruce Linton, would step down.
On an interim basis, co-CEO Mark Zekulin will run the company until a permanent leader is found. The company is considering both internal and external candidates.
In a CNBC interview following his departure,, Linton said: “I think stepping down might not be the right phrase. I was terminated.”
All this comes after CGC reported disappointing fiscal fourth-quarter earnings on June 20. CGC announced adjusted EBITDA of negative $257 million for the fiscal year. But perhaps the most worrisome part of the report was that its Q4 gross recreational Canadian revenue fell to C$68.9 million from C$71.6 million during the same period a year earlier. This is an indication that there are still complications with the supply and distribution of cannabis in Canada as well as continuing black-market activities.
The management of Constellation Brands (NYSE:STZ), which invested a whopping $4 billion Canopy stock in November, was far from thrilled. Here’s what Constellation CEO William Newlands said last week about CGC: “And 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.”
Yikes! It looks like STZ played a major role in Linton’s departure.
So what should investors do with CGC stock now? I don’t think the owners of Canopy Growth stock should panic, since the company’s long-term prospects still look promising. The following developments should be bullish for CGC stock:
- CGC has partnered with STZ to launch cannabis-infused beverages. The drinks are expected to go on sale in Canada later in the year, which should nicely boost CGC’s growth and propel CGC stovk price higher.
- After the Farm Bill was signed into law, cannabidiol (CBD) products can be made in the U.S.. To this end, CGC has been building a sophisticated hemp-processing facility in New York.
- CGC has agreed to acquire Acreage Holdings (OTCMKTS:ACRGF), which has cannabis licenses in 20 states and owns a retail chain called The Botanist. The deal will position the company to benefit from the anticipated legalization of cannabis in the U.S.on a federal level.
The cannabis market will continue to be volatile. CGC is not the only operator with growing pains. Other marijuana companies, including Aphria (NYSE:APHA), Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON) have also had problems.
The Bottom Line on CGC Stock
Linton is a pioneer in the cannabis space and has quickly built an empire. As he was quoted as saying in last week’s press release: “Creating Canopy Growth began with an abandoned chocolate factory and a vision.”
But those who have the talent to build an innovative company in an emerging market may not be the right people to run a large organization. Linton appears to be in the latter category.
Yet the silver lining is that STZ recognized this early on and was not afraid to make a bold, somewhat risky, change. That is actually a bullish sign for CGC stock and should ultimately propel CGC stock price higher.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
