'I did not wish to leave': Canopy Growth's co-CEO Bruce Linton ousted
Published Wednesday, July 3, 2019 8:56AM EDT Last Updated Wednesday, July 3, 2019 3:30PM EDT
TORONTO -- Canopy Growth Corp.'s co-chief executive Bruce Linton, under whose guidance the Canadian cannabis company grew into the largest in the world, was ousted from both the top role and the board in a surprise move on Wednesday.
The Smiths Falls, Ont.-based company said co-chief executive Mark Zekulin will become the sole CEO, effective immediately, and will work with the board to begin a search to find a new leader to guide the company in its next phase.
Linton, who also stepped down as chairman and a director of its venture capital arm Canopy Rivers Inc., said he was "terminated."
"I did not wish to leave," he said in an interview. "I was asked to leave, and I left under the terms that we mutually agreed to... This is not an expected change, and not one I necessarily welcome, but it's not going to be bad for the company."
Linton has been the public face of the company he co-founded, which now has approximately 3,200 employees as of March 31.
As part of the change, Rade Kovacevic, who has been leading the company's Canadian operations and recreational strategy, was named president.
The board also appointed John Bell, who has served as lead director for five years, to replace Linton as chairman.
Shares of Canopy were down by more than four per cent on the Toronto Stock Exchange in early trading but recovered some gains to $52.82 by midday, down by less than one per cent. Canopy Rivers' stock on the TSX Venture exchange was also down by roughly three per cent to $3.00 by midday.
Canopy was founded in 2013 and recently received a $5 billion investment from Constellation Brands, the massive alcohol company whose brands include Corona Beer and Kim Crawford Wines.
The company's surprise announcement came after Canopy last month reported a wider-than-expected fourth-quarter net loss attributable to shareholders of $335.6 million or 98 cents per share, despite a jump in net revenue to $94.1 million that beat market estimates.
In reporting the results, Linton said Canopy invested heavily during the quarter for longer-term growth, such as boosting its production capacity and preparing for the launch of edibles and other next-generation pot products once legal later this year.
Constellation Brands, Canopy's biggest shareholder, said last week that it was disappointed with Canopy's recent year-end results as it recorded a US$106-million loss in its own financial first quarter in connection with its stake in the Canadian cannabis company.
The New York-based company said equity losses in connection with Canopy, which it records on a two-month lag, amounted to 20 cents US per share.
"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," said its president and chief executive Bill Newlands on a call discussing its latest quarter.
"However, we continue to aggressively support Canopy on a more focused, long-term strategy to win markets and form factors that matter while paving a clear path to profitability."
Ryan Tomkins, an analyst with Jefferies, said there has been a growing focus on profitability in the sector.
"With Constellation employees occupying four of Canopy's seven board seats, it appears there became a growing frustration with Canopy's growing investments which saw Constellation's investment diminishing and losses widening," he said in a note to clients.
Given the alcohol company's disappointment and the recent appointment of a Constellation Brands veteran as Canopy's chief financial officer, the move is not surprising, Cowen analyst Vivien Azer said Wednesday.
"The magnitude of losses for WEED (Canopy) has expanded far more than we had expected, and while we commend Linton for his vision in establishing the world's leading cannabis company, we believe new leadership will be a welcome change," she said in a note to clients.
Constellation said it fully supports the board's decision to appoint Zekulin as chief executive.
"Mark has played an integral role in the company's success since its inception, including managing all aspects of the company's day-to-day operations. He is committed to helping ensure a successful transition, as Canopy begins a process to identify a leader to drive the company's vision going forward," a company spokesperson said in an emailed statement.
"The future of Canopy Growth remains very bright and we look forward to the company's continued success for many years to come."
RBC Capital Markets analyst Douglas Miehm said Linton has been at the forefront of Canopy and a figurehead for the industry.
"In our view, Mr. Linton had set relatively high expectations in the market... We believe there may have been a disconnect between the near-term execution sought by Constellation at this point and Mr. Linton's focus on investing for the longer term, often at the expense of short-term performance," Miehm wrote.
Zekulin said Canopy will never be the same without Linton.
"I personally remain committed to a successful transition over the coming year as we begin a process to identify new leadership that will drive our collective vision forward," he said in a statement.
"I know the company will continue to thrive as the Canopy story continues on for years to come."
Companies in this story: (TSX:WEED, TSXV:RIV)