Like others in the cannabis industry, Canopy Growth Corp (NYSE:CGC) is facing some challenges. CGC stock has performed poorly and the company is losing large amounts of money.
In fiscal 2017, it reported losses of about $55 million. In 2018, CGC posted even greater losses of around $670 million. This number is artificially large due to various charges and accounting issues, but even without them, the losses were still significant. As a result, the price of CGC stock has lost about 50% of its value over the past year.
This poor performance lead to CEO and company founder Bruce Linton’s unceremonious firing in early July. Some analysts believe that the Board of Directors was looking for a scapegoat because its members have made their share mistakes as well.
However, it is hard to ignore such large losses. Pressure from Canopy’s largest shareholder, Constellation Brands (NYSE:STZ) is what ultimately forced him out.
I recently attended an investor conference in NYC. Many analysts and portfolio managers that invest in marijuana stocks were talking about this situation.
Some investors seem to believe that Litton deserved to be let go, but they also believe that the Board of Directors could have used a little more decorum so as to not make him look bad.
The current CEO of Canopy Growth, Mark Zekulin, was the Co-CEO along with Linton. Zekulin will be leaving the company as well when the Board finds a new CEO. This essentially makes him a figurehead with limited powers. After all, if he is going to be leaving many will undoubtedly question his commitment and ability to perform.
In a recent interview Zekulin said the company expects to be transitioning and that it will be hiring a new CEO soon. In the meantime, CGC now seems to be like a ship without a rudder.
Who is leading this company? Since Linton left the price of CGC stock has dropped from around $40 to current levels around $28. Obviously, shareholders are not very happy with the way this transition has been handled.
The Board should have considered hiring a new CEO before announcing the leadership transition. This probably would have been a better way to do it and it may have saved shareholders from some of their losses. No doubt holders of Canopy are hoping the new CEO does a better job than the current leadership.
What’s next for CGC stock?
Over the past two weeks, Canopy Growth stock has been consolidating or trending sideways around the $28 level. If it rallies there will probably see resistance around the $32 level. This level supported in July and August. Levels that were formally support tend to become resistance.
This is because when the stock drops below $32 those who bought it at $32 are now losing money. They tell themselves that if the stock rallies back to this level they will sell it. This is so that they can get out of the position at breakeven. All of these sell orders at $32 will create resistance there.
If it trades lower there may be support around the $23 level. This is because it is where the most recent lows were. Those who wanted to buy it at this level but didn’t tell themselves that if the stock drops back to $23, they won’t miss it this time. They will place their buy orders at $23 and this demand for the stock at the level is what creates the support.
At the time of this writing, Mark Putrino did not have any positions in the aforementioned securities.