Bruce Linton terminated as CEO of Canopy Growth Corp (NYSE: CGC)
The termination of Bruce Linton as the co-Chief Executive Officer and Board member of Canopy Growth (NYSE: CGC) (TSX: WEED) and Canopy Rivers (TSXV: RIV) was an astonishing announcement. Linton, almost single-handedly, led the Canadian cannabis industry from its early days in 2013 on the path to acceptance as a conventional, legal and legitimate business. At the same time, Linton carried Canopy Growth from a nearly worthless shell to a recent market capitalization of $14 billion for a return of almost 2,000%. In the process, Canopy was the first cannabis company to list on the Toronto Stock Exchange and subsequently the New York Stock Exchange and the first to attain a $1 billion stock market value.
Yet for all his accomplishments, Linton was also the architect of his own demise.
Although no one knew it at the time, it all started back on October 30, 2017 when Constellation Brands (NYSE: STZ) invested CAN $245 million to acquire a 9.9% stake in WEED. Less than one year later on August 15, 2018 Constellation Brands announced it would purchase 104.5 million shares of Canopy Growth for gross proceeds of approximately $5 billion that would make it a 38% owner. If STZ exercised all its warrants, Constellation would own 55% of Canopy. In addition, these investments allowed STZ to stack WEED’s board of directors with four out of seven members. Also, Constellation placed Mike Lee as Executive Vice President and Chief Financial Officer of Canopy. These changes were not made because Constellation planned to oust Bruce Linton; they are made in case they had to jettison him.
There were several events that moved Constellation to make this decision last week. For example, after Canopy’s earnings call in June 2019, Constellation Brands Chief Executive Officer Bill Newlands said, “We were not pleased with Canopy’s recent reported year-end results.” Constellation reported its first quarter results on June 28, 2019. Without Canopy, they would have reported a profit but because of Canopy’s poor results, Constellation reported a loss of $245 million. That is because Canopy reported a net loss of CA$323.4 million.
We also don’t know about anything that took place behind the scenes but companies like Constellation Brands do not fire executives like Bruce Linton without warning unless there is some scandal involved. With Canopy there was no impropriety. What I can safely speculate is Constellation management made it clear to Linton and Canopy management probably over several months that the reported losses had to be corrected. We can also conclude that Linton chose not respond because he said after the event, “Sometimes entrepreneurs are entrepreneurs because they’re not super employable. You don’t always mesh well with everybody in the play pen.” It reminds of the line from the film Casino, when Alan King’s character says of an old line mafia boss, “…when the old man says ‘maybe,’ that’s like a papal bull….” We can infer that Linton did not respond to Pope Newlands’ edict from the Wall Street Vatican.
From my point of view, Bruce Linton has the entrepreneur’s vision of taking advantage of an opportunity at almost any cost. Linton undoubtedly believes success in the cannabis industry depends on being a first responder. However, Bill Newlands was probably responding to the needs of his Board of Directors and the demands of his large institutional investor shareholders which were quite different. This isn’t the first time we’ve seen this happen to founders in the fledgling cannabis industry: Vic Neufeld at Aphria was forced out, Terry Booth at Aurora was moved upstairs, Eric Paul at CannTrust stepped down and Organigram founder Denis Arsenault moved aside for Greg Engel.
There is a message in all of this. If you are a founder in charge in the cannabis industry, your office is located right next to the exit. At the helm of the world’s leading cannabis company, Linton was unchallenged in guiding Canopy Growth according to his personal vision. For Linton and Canopy that vision might have guided the company very successfully for many more years. But all of that came to a flying stop on July 2, 2019. Although the announcement caught everyone off guard including Linton, it is clear in hindsight there were problems brewing.
I suspect it may be difficult to change the corporate culture at Canopy Growth from the group that managed a high flying, entrepreneurial growth company on top of the heap to a more conservative Wall Street, Fortune 500 firm. It’s the end of a six year run in the Canadian cannabis industry for Bruce Linton and Canopy Growth and it’s been a real trip. Both will continue to be players in the industry but it won’t be the same.