U.S. Markets open in 1 hr 50 mins

CGC Stock Reacts to Canopy Co-CEO’s Ouster

Brad Moon

Canopy Growth Corporation (NYSE:CGC) is in a “leadership transition,” which continues to be a drag on CGC stock.

Canopy Growth, CGC

Source: Shutterstock

After another loss yesterday, CGC stock is down over 4% since the July 3 announcement that founder and Co-CEO Bruce Linton was stepping down from his position. The press release also stated that he will be leaving the Canopy Growth Board.

Poor fourth-quarter results and CBD limitations in the U.S. market are only adding to Canopy Growth’s woes.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

The corporate drama in particular continues a slide for Canopy Growth stock that began in May and has seen shares down over 22%.

The Bruce Linton Effect on CGC Stock

On July 3, Canopy Growth put out a press release announcing a “leadership transition.” The Canadian company’s founder and Co-CEO Bruce Linton would be stepping down from his position immediately, as well as giving up his seat on the board. 

“We thank Bruce and Mark for establishing the foundation for a company that is very well-positioned to lead in the emerging global cannabis market. We are also excited to embark upon our next phase of growth as global leader in the cannabis industry.”

The remaining Co-CEO Mark Zekulin will remain as the sole CEO while the board conducts a search for the next leader of the company. 

News of Linton’s departure had an immediate impact on CGC stock. That’s only natural when the co-CEO, founder, and public face of the largest company in the high profile cannabis industry steps down.

Then Linton poured fuel on the fire. In a CNBC interview, Linton claimed that despite the wording used in the press release (which suggested an amicable split), he was actually fired.

“I think stepping down might not be the right phrase, I was terminated.”

The drama around Linton’s departure has not been great news for the company and Canopy Growth stock continues to feel the impact of the move.

Added to the Q4 Earnings Report

While Linton hasn’t yet suggested he was fired because of the company’s poor Q4 results, many people are connecting the dots. 

Constellation Brands (NYSE:STZ) invested $4 billion in Canopy Growth last August. That move included putting an insider into the role of CFO at Canopy, and adding its own board members. Naturally, a suspicion was raised that Linton was fired as CEO because Constellation had lost patience after another disappointing quarter. When Canopy posted its Q4 results on June 20, revenue was up, but so were losses which were far higher than analysts had been expecting. That resulted in a plunge in the CGC stock price as investors bailed. 

Constellation Brands has been giving interviews denying that Linton was fired because of Canopy Growth’s financial performance, however that’s only adding to suspicions.

What About CBD?

Now that recreational marijuana has been legal in Canada for nearly a year, one of the areas where Canopy Growth has been looking for growth is CBD — a cannabis extract.

The American market for CBD is estimated to be worth as much as $22 billion by 2022, putting it in the same league as recreational marijuana. The company has plans to release CBD products in the U.S. — a move that should have significant upside for CGC stock — however there’s a speed bump there. 

The Federal Drug Administration ruled that it is illegal to add CBD to food or drinks. Yesterday, New York City’s Department of Health put a ban on CBD-infused food and beverages into effect. And starting October 1, violations by restaurants or retailers will come with a fine ranging from $250 to $600. With other jurisdictions — including the states of Ohio and Maine — also banning CBD additives in consumables, the rollout of CBD-infused products seems unlikely to go as smoothly as hoped. 

All in all, not a great start to the summer for Canopy stock. But for investors looking to grab a piece of the biggest player in the legal marijuana market, the company’s current struggles while it enters into its “next phase of growth” may make it a buying opportunity.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

More From InvestorPlace

The post CGC Stock Reacts to Canopy Co-CEO’s Ouster appeared first on InvestorPlace.