On Nov. 21, in response to several potential class-action suits in the United States, Canopy Growth (NYSE:CGC) issued a brief statement acknowledging the legal issues it could be facing. Although the company believes the claims are without merit, CGC stock fell on the news.
Canopy has enough issues at the moment. Class-action suits are just another to add to the pile.
While it can’t ignore these potential suits brought by law firms I believe are masquerading as ambulance chasers, interim CEO Mark Zekulin and the rest of the board of directors must keep their eyes focused on continuing to grow Canopy’s business.
A loss of focus at this point could be fatal. It’s got to carry on, leaving the legal matters to its lawyers. That’s what they’re paid for.
Here are a couple of matters more pressing for Canopy as it heads into 2020.
Finding a New CEO
It’s been a couple of months since Canopy chairman John Bell told the media that the company would have a new CEO by the end of 2019. Well, we’ve come to Thanksgiving without an announcement. That leaves five weeks to lock down a chief executive. Talk about cutting it close.
The reality is the hiring of a new CEO might slide into 2020. Better to get the right person early next year than the wrong person before the turn of the calendar. The appointment’s that important.
In August, I recommended three highly-capable executives Canopy should go after in its quest to be the biggest and best cannabis company on the planet.
One of my suggestions could be available.
From Shoes to Pot?
In October, Mark Parker, the CEO of Nike (NYSE:NKE) for the past 13 years and a Nike employee since 1979, abruptly resigned as chief executive. Although Parker will become executive chairman of Nike on Jan. 13, the demands on the 64-year-old businessman won’t be nearly as time consuming as those of the CEO.
I suggested that Parker was a long shot given his age and commitment to the Nike lifestyle. That said, his understanding of global brands would be incredibly helpful to Canopy as it grows beyond its Canadian roots.
My other two suggestions: Williams-Sonoma (NYSE:WSM) CEO Laura Alber and Starbucks (NASDAQ:SBUX) COO Rosalind Brewer are also long shots. Alber has one of the best CEO jobs in the world, and Brewer is likely to succeed Kevin Johnson as CEO.
Whoever the company appoints has to be someone familiar with branded products.
Until it gets its woman or man locked down, Canopy can’t afford to spend a single minute worrying about these class-action suits.
Canopy and Constellation Have Got to Kiss and Make Up
Canopy’s shares fell almost 10% on Nov. 22 after controlling shareholder Constellation Brands (NYSE:STZ) suggested the gravy train was over for its Canadian partner.
In its Nov. 22 U.S. Securities and Exchange Commission filing, Constellation had the following to say about its significant investment in the cannabis producer:
“[Constellation] does not plan to make additional cash contributions to Canopy beyond any possible exercise of the warrants. Constellation believes that Canopy is adequately capitalized with more than C$2.7 billion cash and marketable securities on hand as of September 30, 2019.”
Can you blame it?
Canopy Growth stock is down 33% year-to-date. Over the past year, CGC is off more than 46%. In the same period, STZ stock has a total return of 16% year-to-date, but it’s down almost 5% over the past 52 weeks. A lot of that has to do with Canopy’s disintegrating stock price, not some deterioration of its beer, wine or spirits businesses.
Canopy has the strongest financial position among the top six Canadian cannabis producers. In early November, I highlighted how it and Cronos Group (NASDAQ:CRON) tower over the other four major competitors.
The new CEO will be pleased to inherit a business whose balance sheet is as solid as they come.
The Bottom Line on Canopy Growth Stock
Yes, it has recorded some massive losses in recent quarters — 1.7 billion CAD in the first six months of fiscal 2020 — but the long-term prognosis for the company remains intact.
The ambulance chasers are launching suits because, in a stock market like the one we’ve got right now, somebody must pay for making investors look silly. And it isn’t going to be the lawyers.
Suck it up, snowflakes. You win some. You lose some. That’s the game of investing. Live with it.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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