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Canopy Co-CEO Ousted From Cannabis Company He Founded

The cannabis CEO said he's been canned.

Bruce Linton, who founded Canadian cannabis company Canopy Growth Corp., stepped down as co-CEO, the company said Wednesday.

Founded in 2013, Canopy has grown into the largest cannabis company on the public market (with a value of $14 billion) under Linton's leadership. Canopy said in a press release that Linton stepped down from his roles as co-CEO and board member, without giving a reason. Canopy couldn't be reached for further comment. However, Linton said the statement is inaccurate.

"I think stepping down might not be the right phrase," Linton told CNBC. "I was terminated."

He'll be replaced by current president and co-CEO Mark Zekulin while the company searches for a new leader.

"The board decided today, and I agreed, my turn is over," Linton said in a statement. While he acknowledged the change wasn't easy, he said he has "full confidence in the team at Canopy."

Linton's seemingly involuntary departure may be due in part to pressure from Canopy's largest shareholder, spirits maker Constellation Brands. Constellation made a $4 billion investment (a 38% stake) in the company in 2018.

"With [Constellation Brands] ... having vocally expressed their 'disappointment' with [Canopy's] most recently reported earnings, and having already installed [a Constellation] alum as CFO, we are not surprised by this move," Cowen analyst Vivien Azer wrote in a note to investors Wednesday. Azer wrote that Linton should be "commend[ed]" for his work at the company, but "new leadership will be a welcome change.”

Constellation nominated four directors to Canopy's board as part of the investment deal, and "about eight months and two days later," Linton told CNBC, the board moved to remove him. The beverage company "fully support[s]" Canopy's decision regarding Linton, Constellation told Bloomberg in a statement.

Constellation's qualms with the cannabis giant have been budding for a while—Canopy reported disappointing losses last month in the fourth quarter, setting Constellation back almost $39 million. Constellation said it was "not pleased" with the losses, which amounted to some CA$323.4 million, according to Canopy's earnings.

Morningstar analyst Kristoffer Inton said the leadership change was surprising.

“I didn’t necessarily agree with the reaction that most of the Street had on the fourth quarter," Inton told Fortune. "This is a growth company in a growth industry. To measure the near-term results, especially in profitability, that harshly is a bit surprising..
It’s like looking at a startup in its first year and asking, why is it not profitable?"

Inton said the cannabis industry has more room to grow, and that, at this stage, "top-line growth is probably way more important right now than profitability."

Constellation's Chief Financial Officer David Klein told analysts on a call that he was "very happy" with the company's investments, and that the beverage maker was positive on Canopy's deal to acquire U.S.-based cannabis operator Acreage Holdings.

Wall Street seems equally optimistic.

“This is a pretty innovative deal,'' Inton said, because shareholders have U.S. exposure ''if and when U.S. federal legalization happens or is relaxed," Inton said. Canopy's peers "are going to have to scramble and start trying to buy assets … so it’s a pretty forward move by Canopy,” he said.

Zekulin will help with the search for a new co-CEO, the company said. Zekulin said in a statement that “I personally remain committed to a successful transition over the coming year as we begin a process to identify new leadership that will drive our collective vision forward.''

For Morningstar's Inton, the leadership change will likely be more about finding someone who will "execute better rather than someone who has big strategic change,” he says. Cowen's Azer wrote that the transition won't prove "disruptive."

Still, Canopy's stock was pushed down some 5% early at the news, but has since recovered, up over 2% in intraday trading on Wednesday. The news shouldn't rattle Canopy's stock too much in the near-term, Inton believes. He said the company will likely focus on the Canadian market, expanding in the international medicinal sector and developing beverages alongside Constellation.

Linton helped the company innovate with partnerships and even celebrities like Martha Stewart and Snoop Dogg.

Now, Linton's time is up. But for Wall Street, Canopy can only get higher.

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