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Constellation Brands Flexes Muscles with Ouster of Canopy Growth’s Bruce Linton

Bruce Linton
Bruce Linton

The firing of Canopy Growth co-CEO and co-founder Bruce Linton on July 3 shows that navigating the boardroom requires Machiavellian skills a lot of visionary company founders don’t have.

It’s a fate shared by many other company founders, including Steve Jobs, who was forced out of Apple in the 1980s. Linton emerged in the past two years as the face of the new cannabis industry, just as Jobs served as the most visible company leader during the personal computer revolution.

Through two of the most high-profile deals in the history of legal cannabis, Linton grew the company quickly as a major legal pot producer in Canada. First, he inked a $4 billion sale of a 38% stake in the company to Corona beer and spirits maker Constellation Brands one year ago in the largest single completed transaction in the industry to date. As part of the deal, Constellation received a majority of four seats on Canopy’s board of directors, effectively taking control of the company while only owning a minority position.

In April, Canopy announced a $3.4 billion deal, mostly in stock, to acquire U.S. multi-state operator Acreage Holdings. However, before it moves forward, U.S. prohibition laws around cannabis must be reduced or eliminated.

Linton also agreed to ventures with celebrities such as Snoop Dogg and Martha Stewart, and was a frequent headline speaker at industry events.

Linton’s a Victim of Canopy’s Rapid Growth He Helped Engineer

The problem for Linton was, despite all these moves, Canopy Growth is mired in red ink. In June, the company posted losses of C$323.4 million. This was primarily due to the slow Canadian legal marijuana market, which began last October. Canopy owns one of the country’s largest licensed producers, the Ontario-based Tweed.

With the Canadian industry just three months away from allowing the sale of infused products such as edibles, drinks and food products, the Canopy board obviously didn’t have faith that Linton had the skill-set to tackle this new and important market.

While the company’s press release said Linton was stepping down as co-CEO and board member, he was more direct about the corporate shuffle: “I think stepping down may not be the right phrase. I was terminated.”

For now, Canopy co-CEO Mark Zekulin remains in his job as the company searches for a new executive. Rade Kovacevic was promoted to president.

“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,” board director David Klein stated. “We’re also excited to embark upon our next phase of growth as global leader in the cannabis industry.”

The departure of Linton came a bit more abruptly than some expected, though Cowen analyst Vivian Azer applauded the move: “The magnitude of losses… 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.”

Linton, who owns 3.2 million shares of Canopy Growth with a market value of $168 million, lamented: “Creating Canopy Growth began with an abandoned chocolate factory and a vision. The Board decided today, and I agreed, my turn is over. Mark has been my partner since this company began and has played an integral role in Canopy’s success. While change is never easy, I have full confidence in the team at Canopy – from Mark and Rade’s leadership to the full suite of leadership – as we progress through this transition and into the future.”

GREENWAVE ADVISORS’ MATT KARNES: “We haven’t seen the last of Linton. He’s leaving Canopy with a loaf of bread under each arm. He’ll have the resources to invest in other companies or even start up another business.”

Since Canopy was issued a NYSE listing (CGC) last year, U.S. investors have been pouring money into it in the hopes of riding the green cannabis wave. At press time, the house formerly run by Linton amassed a market cap of more than $13.5 billion. The stock is currently at $39.39.

That’s an extremely high valuation given the company’s sales figures of about $72 million in the most recent quarter.

Linton’s removal may have been assured as soon as he made the deal with Constellation. One sign came in May when a former Constellation exec Mike Lee became chief financial officer of Canopy Growth. Matt Bottomley, analyst at Canaccord Genuity, says Constellation executives had publicly criticized the latest Canopy results.

“The strategic direction of the company has the potential to shift more toward profitability… given Constellation’s increasing influence and voiced disappointment at the company’s year-end financial results,” Eight Capital analyst Graeme Kreindler added in a research note.

Regarding the selection of a new CEO, he said, “A suitable candidate will be one that has extensive experience in scaling an international business and a background either in consumer-packaged goods or pharmaceuticals.”

Matt Karnes, president of Greenwave Advisers, tells Freedom Leaf that Constellation wanted to shore up leadership at the company as it moves from start-up phase of acquisitions and growth to becoming a more mature company.

“The timetable for U.S. legalization may be speeding up and Constellation wanted to be ready for it,” Karnes notes. “We haven’t seen the last of Linton. He’s leaving Canopy with a loaf of bread under each arm. He’ll have the resources to invest in other companies or even start up another business.”

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