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Bruce Linton, the co-founder of Canopy Growth Corp. and one of the cannabis industry’s most prominent executives, is out of a job after months of poor financial results and rising tensions with the company’s new owner.
Canopy announced early Wednesday that Mr. Linton was no longer a co-chief executive officer or board member. Mr. Linton confirmed in an interview he’d been terminated. Mark Zekulin will now lead the company on an interim basis as it searches for a new CEO.
Mr. Linton charted an aggressive course of acquisitions on the path to turning the grower based in Smiths Falls, Ont., into one of the world’s largest pot companies. He said his ouster came at the hands of the leadership of New York-based Constellation Brands Inc., which gained control of Canopy after a $5-billion investment last summer. Since that deal, Constellation has sought to exert more influence over the cannabis producer, leading to clashes between Constellation CEO Bill Newlands and Mr. Linton over the direction of the company, sources familiar with the matter said.
For Canopy, the firing marks a new chapter in the company’s evolution from a medical marijuana startup to a world leader in the cannabis sector. For the industry, the move highlights how expectations have shifted in the months since recreational marijuana was legalized last October. Canadian cannabis companies were once judged largely on their aspirations: how much weed they promised to one day produce or how many countries with whom they had signed export licences. Today, institutional backers and strategic partners have bigger seats at the table – and they want profits.
Canopy’s mounting losses took their toll on the company’s shares. It lost $323-million in its most recent quarter and its stock price has fallen 26 per cent since late April. And last week, Mr. Newlands voiced his displeasure with Canopy’s results on a conference call.
But Mr. Linton, who had led Canopy since its founding five years ago, said it was a phone call last Friday that made him believe his days atop the company might be numbered. Hours before the Canada Day long weekend, Mr. Linton got a call from Constellation requesting a board meeting.
“Instead of having it on the phone that day, they wanted to have it in person,” Mr. Linton said in an interview. “That caused my spidey-sense to tingle.”
At the meeting four days later, he was fired from the company he built into an $18-billion juggernaut.
For a serial entrepreneur, it was a familiar scene. “It was not the first time I’ve been fired as a founder,” he said. Once the meeting starts, “you know exactly what you’ve walked into.”
Mr. Linton is not just another CEO. He spent years as the most public face of Canada’s legal cannabis industry, proudly wearing cannabis T-shirts on television, expounding on the promise of pot as a business and an investment. He helped draw billions of dollars of capital to the industry as Canopy earned a reputation as a mature force in an immature sector. Everyone seemed to want a piece of Canopy – including Constellation.
But eventually Constellation’s Mr. Newlands and Canopy’s other investors were bound to judge the company based on its bottom line.
“The time has come when it is critical for cannabis companies to show that you can run a profitable business and you can do it in a manner that involves investing wisely to build your brands,” OrganiGram Holdings CEO Greg Engel said of the shifting expectations.
“Investors are looking for more traditional metrics and numbers that matter – Is a company cash-flow positive? What is their gross margin? What is their adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] margin?”
Canopy’s fourth-quarter loss, announced last month, was four times larger than analysts’ expectations.
“The magnitude of losses for [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,” Cowen analyst Vivien Azer wrote in a note to clients Wednesday after the exit was made public.
Canopy had negative EBITDA of $257-million in fiscal 2019 and an EBITDA loss of $36-million in fiscal 2018.
“The departure of Mr. Linton is indicative of the fact that the losses Canopy is experiencing are getting out of control,” Macquarie analyst Caroline Levy wrote in a note to clients, adding losses are projected “to continue for at least the next three years as Canopy invests in Canada, the U.S. and new markets around the world.”
In the months leading up to Constellation’s first investment in Canopy in 2017, a deal worth $245-million, Constellation spoke glowingly of Canopy and its management team. “Our view going in after our assessment was that Canopy was the best player. They had the best management, best science, largest market share and a strong management team,” Mr. Newlands told The Globe in January.
Half a year later, Mr. Newlands used a very different tone when speaking about Canopy on Constellation’s quarterly conference call last week. While Mr. Newlands said he is still optimistic about cannabis, he added, “We were not pleased with Canopy’s recent reported year-end results.”
Mr. Newlands, said he still strongly supports Canopy, but threw in a condition: The support is for a “more focused, long-term strategy.”
Constellation declined to comment for this story.
Under Mr. Linton, Canopy was an early mover when Canada announced plans to legalize recreational marijuana in 2015. In the span of a few years, scores of rival cannabis companies emerged, leading to fears that Canada would be oversaturated with cannabis production. To pivot, the largest players started looking abroad, particularly in Europe where some countries legalized medical marijuana. Canopy now operates in 16 countries.
In April, Canopy said it would pay US$300-million to secure the right to buy Acreage Holdings Inc. should federal marijuana laws change in the United States. Canopy also agreed to pay US$3.4-billion for Acreage in the future, based on where its own shares were trading when the sale is triggered by legalization in the U.S.
While Constellation has voiced its support for the Acreage transaction, which was approved by shareholders last month, Mr. Newlands has signalled he is less interested in empire building and more into making money off cannabis in the near future.
Constellation said it will search for a new CEO for Canopy and that it will assess both internal and external candidates. Canopy’s shares dropped sharply in early morning trading Wednesday but recovered throughout the day and closed up 2 per cent at $53.52.
Mr. Linton, meanwhile, expressed optimism that he will land at another company, likely outside of Canada. Mr. Linton said he has a non-compete clause with Canopy that prevents him working for a rival Canadian cannabis company for a period of time. Even if he didn’t, he said, he would probably look abroad.
“When we were building Canopy my job was to never mention any of [our competitors’] names and try to run over them if we ever saw them anywhere,” he said.
No matter where he lands, Mr. Linton is giving up one of his biggest roles. “The role of de-facto spokesperson will need to be actively filled by others,” he said, “because I think I probably did more media work than the rest of the sector combined.”