Cannabis giant Canopy Growth Corp. is replacing its chief financial officer and long-serving chief product officer, in an executive shakeup that comes barely two weeks after the company reported weak earnings.
In a statement released Friday morning, the Smiths Falls, Ont.-based pot producer said Mike Lee, its executive vice-president and chief financial officer, and Rade Kovacevic, its president and chief product officer, would be stepping down from their roles immediately, before formally departing the company on Dec. 31.
Canopy has appointed Judy Hong – the current chief of staff to CEO David Klein, who also leads the company’s investor relations team – as interim CFO. Ms. Hong previously worked at Goldman Sachs & Co., focusing on the consumer-packaged goods sector. Tara Rozalowsky, Canopy’s current vice-president of beverage and edibles, will take on the role of interim chief product officer.
“These decisions reflect management and the board’s vision for building a best-in-class organization that is well-positioned to deliver long-term growth and shareholder value,” Mr. Klein said in the statement. Canopy did not immediately respond to The Globe and Mail’s request for an interview with Mr. Klein.
Canopy’s stock declined slightly on news of the executive departures. The company’s shares have dropped by 13 per cent over the course of the last month.
Sales growth has been a struggle for Canopy lately, as the company faces intense competition from a myriad of other cannabis producers in a recreational market that is flush with products and devoid of brand loyalty. The company has seen its revenue decline over the past three quarters – most recently it generated $131-million for the quarter ending Sept. 30, 2021, in sharp contrast to $152-million that it generated in the last three months of 2020, when recreational cannabis stores across the country were mostly closed.
Canopy spent much of 2021 on a buying spree, spending almost half a billion dollars buying craft producers The Supreme Cannabis Co. and Ace Valley. But adding new brands to the company’s product line has yet to yield much in terms of actual sales growth.
Mr. Lee made US$984,359 and Mr. Kovacevic made US$971,258 in the fiscal year ended March 31. In the previous year, Mr. Lee received stock and option awards worth US$1.33-million, and Mr. Kovacevic received stock and option awards worth US$2.52-million.
The two men are eligible for severance equal to 1.5 times their salaries and 1.5 times their average annual bonus for the past two years, according to Canopy’s proxy circular. Some of their stock awards will vest, or become sellable, now. Mr. Kovacevic’s stock options will continue to vest for a year, the company said in its proxy.
Mr. Kovacevic was one of the earliest employees of Canopy, joining the company in August, 2015, when it was still called Tweed Inc., and was only licensed to grow cannabis for medical consumption. He rose up the ranks of the corporation quickly, and was instrumental in crafting Canopy’s sales strategy for its most popular brand, Tweed, in the prelegalization days, before Health Canada imposed stricter branding and advertising rules. Mr. Kovacevic’s LinkedIn says he was appointed chief product officer in June, 2020. He did not immediately respond to The Globe’s request for comment.
Mr. Lee was appointed CFO of Canopy in May, 2019, just two months before Bruce Linton, co-founder and former CEO of the company, was abruptly fired by the company’s board after pressure from its largest investor, alcohol giant Constellation Brands. Mr. Lee served as CFO for Constellation Brands’ wine and spirits division. His appointment to Canopy’s management, along with that of Mr. Klein’s (also a former Constellation executive) was largely seen by investors and analysts at the time as a positive move in improving corporate governance practices of an early-stage cannabis company.
But more than two years later, alongside facility closings, inventory writedowns and job losses, some analysts appear to have changed their tune, questioning Mr. Klein’s tenure at the company. In a note to clients, Andrew Carter, an analyst with Stifel Financial Inc. characterized Mr. Klein’s time at the company as one consisting of “poor execution, misallocated capital and mismanaged expectations.”
“The organization has been through multiple rounds of layoffs, yet the executive team remains filled with positions where we question the value alongside leaders directly responsible for the Canadian performance … we believe the problem rests with Constellation Brands’ majority control of the Board,” Mr. Carter wrote.
In a Nov. 16 meeting with analysts, Canopy’s management team emphasized that it has started investing more in better genetics for its cannabis plants, in an effort to produce better-quality pot with higher THC content, according to a note from Tamy Chen, Bank of Montreal’s cannabis analyst.
“Our sense is the team has realized consumer tastes evolve very rapidly in cannabis. It is encouraging that management is now looking to more grassroots sources for new product innovation ideas,” she wrote.
With a report from David Milstead
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Vanmala Subramaniam