Cronos Group (NASDAQ:CRON) is oversold, so there is a chance that it has a small rebound or relief rally soon, and it better. As Cronos stock continues to trend lower, a management shakeup is more likely.
Unfortunately, the likelihood of a management shakeup improving the firm’s fortunes is marginal at best.
It is oversold, so there is a chance that it has a small rebound or relief rally soon. Cronos just announced that it has appointed Jody Begley to the Board of Directors. He is currently senior vice president of tobacco products for Altria Group (NYSE:MO) where he oversees more than $20 billion in revenues.
You may remember that last December Altria bought a 45% stake in Cronos for around $1.8 billion. Begley’s placement onto the board is in connection with this transaction.
Personally, if I was currently a member of the Cronos management team, I would probably get my resume together. Sometimes additions to the board of directors lead to management shakeups and we could be about to see that here.
Altria Management and Cronos Stock
The management of Altira is not happy with how Cronos has performed. How could they be? It has been terrible. Since February the price of CRON stock has dropped from around $24 a share to current levels around $9.
In fiscal 2018 the company posted a loss of almost $19 million, which works out to be a loss of 11 cents per share. Many analysts believe that the company will lose money again this year.
Often times, when a major shareholder of a company isn’t happy how the current management is performing, they place their representatives on the board. This, in turn, allows the board to make the management changes that the shareholder believes make sense. In other words, they can fire people.
Does removing the CEO of a poorly performing company help to turn things around? Some are doubtful.
“Most companies perform no better—in terms of earnings or stock-price performance—after they dismiss their CEOs than they did in the years leading up to the dismissals” according to Margarethe Wiersema in an article in the Harvard Business Review. “Worse, the organizational disruption created by rushed firings—particularly the bypassing of normal succession processes—can leave companies with deep and lasting scars.”
A Look at Cronos Stock
Regardless, when people are losing money, they become emotional and feel as though they need to take action. Many times, in hindsight the decision didn’t make sense.
This could end up being a similar situation to what happened at another large cannabis grower, Canopy Growth (NYSE:CGC). In June the Board of Directors unceremoniously fired Bruce Linton, the former CEO and co-founder of the company. Canopy has been losing money and the stock has performed very poorly, so the Board thought that it made sense to force him out.
Similar to how Altria made a large investment into Cronos, Constellation Brands (NYSE:STZ) made a major investment into and became a major shareholder of Canopy. It was the members of the board that were aligned with Constellation Brands that ultimately pushed Linton out.
At the time of this writing Mark Putrino did not have any positions in the aforementioned securities.