Some of the leading companies in the cannabis space are feeling pressure to justify the huge valuations of their stocks. Just look at Canopy Growth (NYSE:CGC). Recently, the company announced that its co-CEO, Bruce Linton, would step down.
On an interim basis, co-CEO Mark Zekulin will run the company until a permanent leader is found. The company is considering both internal and external candidates.
In a CNBC interview following his departure,, Linton said: “I think stepping down might not be the right phrase. I was terminated.”
All this comes after CGC reported disappointing fiscal fourth-quarter earnings on June 20. CGC announced adjusted EBITDA of negative $257 million for the fiscal year. But perhaps the most worrisome part of the report was that its Q4 gross recreational Canadian revenue fell to C$68.9 million from C$71.6 million during the same period a year earlier. This is an indication that there are still complications with the supply and distribution of cannabis in Canada as well as continuing black-market activities.
The management of Constellation Brands (NYSE:STZ), which invested a whopping $4 billion Canopy stock in November, was far from thrilled. Here’s what Constellation CEO William Newlands said last week about CGC: “And while we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy’s recent reported year end results.”
Yikes! It looks like STZ played a major role in Linton’s departure.
So what should investors do with CGC stock now? I don’t think the owners of Canopy Growth stock should panic, since the company’s long-term prospects still look promising. The following developments should be bullish for CGC stock:
CGC has partnered with STZ to launch cannabis-infused beverages. The drinks are expected to go on sale in Canada later in the year, which should nicely boost CGC’s growth and propel CGC stovk price higher.
After the Farm Bill was signed into law, cannabidiol (CBD) products can be made in the U.S.. To this end, CGC has been building a sophisticated hemp-processing facility in New York.
CGC has agreed to acquire Acreage Holdings (OTCMKTS:ACRGF), which has cannabis licenses in 20 states and owns a retail chain called The Botanist. The deal will position the company to benefit from the anticipated legalization of cannabis in the U.S.on a federal level.
The cannabis market will continue to be volatile. CGC is not the only operator with growing pains. Other marijuana companies, including Aphria (NYSE:APHA), Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON) have also had problems.
The Bottom Line on CGC Stock
Linton is a pioneer in the cannabis space and has quickly built an empire. As he was quoted as saying in last week’s press release: “Creating Canopy Growth began with an abandoned chocolate factory and a vision.”
But those who have the talent to build an innovative company in an emerging market may not be the right people to run a large organization. Linton appears to be in the latter category.
Yet the silver lining is that STZ recognized this early on and was not afraid to make a bold, somewhat risky, change. That is actually a bullish sign for CGC stock and should ultimately propel CGC stock price higher.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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