- Bruce Linton is stepping down as co-CEO and a board member of Canopy Growth, according to a release from the company. Co-CEO Mark Zekulin will become the sole chief executive.
- Zekulin and the board will search for a replacement, looking at both internal and external candidates. Rade Kovacevic, who currently leads all Canadian operations and recreational strategy, will become president.
- Constellation Brands invested $4 billion in Canopy last year, giving it a 38% stake in the company. Linton told CNBC on Wednesday that he was forced out by Constellation. “I think stepping down might not be the right phrase," he said. "I was terminated."
When Constellation invested a significant amount of money in Canopy last year, the maker of Corona and Modelo beers was expecting to see growth and the start of a return on its investment. The sudden change in the C-suite shows the company is not happy with the performance so far. Linton, who founded the company in 2013, was likely pushed out so that the Constellation could put someone of their own choosing in the top position.
While Linton's sudden departure might be a surprise, there were signs recently that Constellation was growing dissatisfied with operations at Canopy. Last month, the pot company posted a wider-than-expected loss in its fourth quarter that missed analysts’ expectations. CNBC estimated the loss took nearly $39 million out of Constellation’s own earnings. William Newlands, Constellation's CEO, said the company wasn't pleased with those results.
"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. 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," Newlands said in its earnings call last month.
As part of its investment, Constellation nominated four directors to Canopy's seven-member board. This gave the company a strong voice in executive decisions at Canopy. It is not uncommon for executive changes to be made after a meaningful investment or an outright purchase.
Dr Pepper Snapple (now Keurig Dr Pepper) purchased the rest of Bai Brands that it didn't already own for $1.7 billion in 2017. Shortly after the acquisition, Dr Pepper Snapple pushed out Bai founder Ben Weiss as CEO and put in Lain Hancock, a seasoned executive of the beverage giant. Canopy said it was looking at internal and external candidates, so Constellation might take a similar approach and want to put one of their employees in the top spot.
“The magnitude of losses for [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,” Cowen analyst Vivien Azer said in a note to investors cited by CNBC.
Cannabis continues to be a hot space in the food and beverage industries as legalization becomes more prevalent around the world. Canopy Growth has experienced significant momentum since it was founded six years ago, establishing leading positions in Canada's medical and recreational cannabis markets. It's grown to a company worth nearly $14 billion.
But there continues to be questions about where the market is going since the product is still illegal in many areas, a reason Big Food has been reluctant to invest. Linton told Food Dive in February that his company hadn't heard from any large U.S. food manufacturers looking to do business.
Canada will allow some cannabis-infused items, including edibles, beverages, topicals and extracts, to be sold in stores in December. It is still illegal in the U.S. even though reports have shown that CBD is entering products at a rapid pace. The U.S. Food and Drug Administration only recently held its first public hearing on the ingredient, and analysts have said it could still be years before there is a legal path to market.
But as more markets legalize the substance, Canopy and Constellation are hoping to have a first-mover advantage. The new co-CEO will be charged with taking advantage of Canopy's large presence and making the beer giant's big financial bet pay off.