This story was updated with additional files from Canadian Press and OBJ staff.
Canopy Growth Corp.'s co-chief executive Bruce Linton, under whose guidance the Canadian cannabis company grew into the largest in the world, was ousted from both the top role and the board in a surprise move on Wednesday.
The Smiths Falls-based company said co-chief executive Mark Zekulin will become the sole CEO, effective immediately, and will work with the board to begin a search to find a new leader to guide the company in its next phase.
As part of the change, Rade Kovacevic, who has been leading the company's Canadian operations and recreational strategy, was named president.
The board also appointed John Bell, who has served as lead director for five years, to replace Linton as chairman.
Linton said he was “terminated.”
“I did not wish to leave,” he said in an interview with The Canadian Press. “I was asked to leave, and I left under the terms that we mutually agreed to ... This is not an expected change, and not one I necessarily welcome, but it's not going to be bad for the company.”
Linton, who also stepped down as chairman and a director of Canopy Rivers Inc., has been the public face of the pot producer, which had approximately 3,200 employees as of March 31. He was named OBJ’s CEO of the Year in 2018 for his stewardship in leading one of the world’s largest cannabis producers ahead of recreational pot’s legalization last October.
The Carleton University graduate held several executive and board positions in Ottawa’s tech sector before starting medical marijuana company Tweed in 2013 and famously turning an abandoned Hershey chocolate factory in Smiths Falls into its cannabis-growing headquarters.
As the federal government started to move towards legalizing the drug for recreational purposes, Linton made it clear that he wanted Canopy Growth to be the No. 1 global player in the emerging sector.
“We want to be really not very Canadian,” he said in a 2016 speech to an Ottawa business audience. “We want to dominate the world.”
In August 2018, Canopy received a $5 billion investment from Constellation Brands, the massive alcohol company with brands that include Corona Beer and Kim Crawford Wines that helped fund the cannabis firm’s ongoing expansion and several acquisitions.
In an interview with OBJ last fall, Linton again emphasized how he wanted to position Canopy Growth for long-term success.
“We’ve got to go fast to keep up with the globalization so we maximize the future value of the company,” he said.
Constellation ‘not pleased’ with results
The company's surprise announcement came after Canopy last month reported a wider-than-expected fourth-quarter net loss attributable to shareholders of $335.6 million or 98 cents per share, despite a jump in net revenue to $94.1 million that beat market estimates.
In reporting the results, Linton said Canopy invested heavily during the quarter for longer-term growth, such as boosting its production capacity and preparing for the launch of edibles and other next-generation pot products once legal later this year.
Constellation Brands, Canopy's biggest shareholder, said last week that it was disappointed with Canopy's recent year-end results as it recorded a US$106-million loss in its own financial first quarter in connection with its stake in the Canadian cannabis company.
The New York-based company said equity losses in connection with Canopy, which it records on a two-month lag, amounted to 20 cents US per share.
"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," said its president and chief executive Bill Newlands on a call discussing its latest quarter.
"However, we continue to aggressively support Canopy on a more focused, long-term strategy to win markets and form factors that matter while paving a clear path to profitability."
In an interview with Bloomberg Wednesday, Linton defended his focus on future growth.
“Canopy could have been substantially profitable three years ago and it would be irrelevant today,” he said. “If people just want a profit, buy a bank or something, because this is a sector that’s never going to be smaller.”
Linton said he would now be concentrating his efforts on his involvement in two Ottawa tech ventures. He’s the co-founder of online rental marketplace Ruckify as well as the co-chair of rapidly growing Kanata tech firm Martello. He wore a t-shirt bearing the name of the company, which went public last year to the televised interview.
He also told Bloomberg that he’ll “probably do (more) stuff with cannabis,” although the terms of his departure with Canopy Growth precluded him from launching another pot venture in Canada.
“I think I’ve been around cannabis public policy and how it can be applied and how it’s being globalized earlier and more actively than anyone else. And that pattern isn’t really changing very quickly and I’d like to use those skills.
Ryan Tomkins, an analyst with Jefferies, said it appeared that “there became a growing frustration with Canopy's growing investments which saw Constellation's investment diminishing and losses widening," he wrote in a note to clients.
Given the alcohol company's disappointment and the recent appointment of a Constellation Brands veteran as Canopy's chief financial officer, the move is not surprising, Cowen analyst Vivien Azer said Wednesday.
"The magnitude of losses for WEED (Canopy) 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," she said in a note to clients.
Constellation said it fully supports the board's decision to appoint Zekulin as chief executive.
"Mark has played an integral role in the company's success since its inception, including managing all aspects of the company's day-to-day operations. He is committed to helping ensure a successful transition, as Canopy begins a process to identify a leader to drive the company's vision going forward," a company spokesperson said in an emailed statement.
"The future of Canopy Growth remains very bright and we look forward to the company's continued success for many years to come."
RBC Capital Markets analyst Douglas Miehm said Linton has been at the forefront of Canopy and a figurehead for the industry.
"In our view, Mr. Linton had set relatively high expectations in the market ... We believe there may have been a disconnect between the near-term execution sought by Constellation at this point and Mr. Linton's focus on investing for the longer term, often at the expense of short-term performance," Miehm wrote.
Zekulin said Canopy will never be the same without Linton.
"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," he said in a statement.
"I know the company will continue to thrive as the Canopy story continues on for years to come."
Shares of Canopy were down by more than four per cent on the Toronto Stock Exchange in early trading but recovered to end the day up nearly two per cent to $53.52. Canopy Rivers' stock on the TSX Venture exchange was down by roughly three per cent to $3.
– With files from OBJ staff