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 | | | A Major Player Is Fired... What Does This Mean for the Industry? | | Matthew Carr | Chief Trends Strategist | The Oxford Club | | | | | The cannabis industry brought news last week that blew up my phone and email, with colleagues, friends and readers all asking the same question.
We all know that cannabis is one of the fastest-growing sectors in the world. It's volatile and chock-full of highfliers and turbulence. And it's pushed and pulled daily by headlines and major announcements.
This was especially the case last week, when the weed world was sent reeling by one of the biggest pieces of news we've had in quite some time...
Canopy Growth Corp. (NYSE: CGC) CEO Bruce Linton was tossed out on his keister.
That's what drove so many to ask me: What does this mean for the industry and my portfolio?
As you all know, for years Canopy has been my No. 1 Canadian pot stock to own. The cannabis company's unparalleled brands, celebrity partnerships, coffers and international reach make it one of the few surefire plays in the space.
It's the blue chip of the sector... the biggest fish in a small pond.
Beyond that, Linton has essentially been the face of the legal cannabis industry. Not just in Canada, but in the U.S. He's easily recognizable - even to novice pot investors - with his uniform of graphic tees under a tweed blazer.
It was the "hip dad" vibe that investors found comfort in.
But all of that wasn't enough to protect his position. | | | Now, for much of the past year, we've seen a lot of C-suite turnover at marijuana companies. And we've covered that in-depth here.
For the most part, original CEOs and executives were shown the door as the industry matured. The path from private to public is exhausting, introducing a cornucopia of stress, scrutiny and criticism from Monday morning quarterbacks. Not to mention, the leadership skill set needed to run a public company is different from what a private one needs.
So no shocker that Linton summed up his exit with "My turn is over."
Of course, Canopy has been dogged by negative headlines in recent months.
There was the revelation that back in 2014 authorities intercepted an "unfathomable quantity" of marijuana at an airport in Ontario. The shipments were headed to two companies - Tweed and Mettrum Health. Both are now part of Canopy.
A number of growers had decided to pool their products into a single shipment. And the size of it ended up violating legislation.
The seizure took place days before Canopy went public. And the Royal Canadian Mounted Police decided to stay mum on the incident so as not to hurt the share price of the company or embarrass Health Canada.
No charges were filed because of the difficulty of proving illegal intent.
Then we have the losses. Just a day before Linton was ousted, we published our Making the Grade piece on net income losses. Canopy was by far the biggest loser.
Of course, in recent quarters, a sizable portion of the losses has been stock-based compensation for employees, which is to be commended.
But major stakeholder Constellation Brands (NYSE: STZ) and Canopy's board apparently grew tired of these mounting losses. Remember, we covered here that Constellation CEO Rob Sands stepped down this year to focus on the company's $4 billion Canopy investment.
Current Constellation CEO William Newlands said he wasn't pleased about Canopy's most recent earnings.
There was a time, not too long ago, when I was asked whether investors should be concerned by all of the cannabis C-Suite exits. I answered that there are two exits that would potentially change my mind about a company: Bruce Linton from Canopy and CCO Cam Battley from Aurora Cannabis (NYSE: ACB).
They are two prominent faces of their companies and the industry.
But let's be honest... If a company's success is dependent on a single person, it's not that great of a company, is it?
The fact is that Canopy is larger than Linton - as is the industry. What investors can hope for is change and that the path forward will include reining in spending and creating profits.
The High Five
Below are this week's High Five, where - each Monday - I cover the five pot stocks I believe will make major moves - up or down - in the week ahead.
1) Canopy Growth Corp. (NYSE: CGC) has to be our No. 1 pot stock to watch in the week ahead. Last week was shortened because of the July Fourth holiday. So investors will be back - hopefully with all their fingers intact - to digest it all this week.
Mark Zekulin, who was co-CEO with Linton, is at the helm... for now. Canopy is searching internally and externally for a new leader. That means the Linton-Zekulin era is over.
Linton has argued that the losses of the last several quarters were to increase production capacity and intellectual property. The company has taken five quarters to build an eight times bigger platform.
From Linton's viewpoint (and mine), the short-term declines will be rewarded with much larger numbers later.
But that's something new management will take credit for.
2) KushCo Holdings (OTC: KSHB) is on tap to report third quarter earnings on Tuesday after the closing bell. Expectations are for revenue to skyrocket 213% to $40.42 million. But pesky losses are poised to be the fly in the ointment. The packaging company's loss per share is projected to expand from $0.03 to $0.13 this year.
Current CEO Nick Kovacevich has taken the company from $2 million in annual sales in 2014 to an expected $147 million in fiscal year 2019. But it hasn't been smooth sailing, as investors have grown weary of losses here too.
3) OrganiGram Holdings (Nasdaq: OGI) is on deck to report third quarter earnings on July 15 before the opening bell.
We're looking for a massive 549% increase in revenue to $18.47 million. Even better, we should see an increase in earnings per share to $0.02.
OrganiGram is one of only four Canadian producers to sign supply agreements with all 10 provinces.
During a recent CNBC interview, Shark Tank's Kevin O'Leary asked Bruce Linton where he would put his money if he could invest in a company other than Canopy.
Linton highlighted OrganiGram because of "how they run themselves."
4) Acreage Holdings' (OTC: ACRGF) and Canopy Growth's fortunes are intertwined. After Linton's termination was announced, Acreage shares were hit the hardest, falling nearly 9% last week.
Canopy has agreed to acquire Acreage for $3.4 billion... when pot is finally federally legalized in the U.S.
But with Linton gone, investors seem worried about the takeover deal, even though the shareholders of Acreage and Canopy already approved it. Though Linton said he's holding on to his shares of Canopy because when the deal is activated, he said his stock will be "worth a multiple then of what it's worth now."
5) Canopy Rivers (OTC: CNPOF) is another investment that Bruce Linton said he liked. It's actually a company that has 14 different investments in one portfolio, and so it is an easy way to diversify in his book.
It serves as the venture capital arm of Canopy Growth. And it was spun off from its parent in September 2018. Of course, Linton was not only CEO of Canopy Growth but also chairman of Canopy Rivers' board of directors - another position he relinquished last week.
To top it all off, Canopy Rivers will report fourth quarter results on July 16 before the opening bell.
It's been another wild week for cannabis. And it's very clear how much in the industry is linked to Canopy Growth.
As always, we want to compare our High Five with the industry's benchmark...
Over the past month, the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) has largely been flat, losing less than 1%. Canopy Growth is the largest holding in the marijuana ETF, accounting for nearly 12% of the index. Shares of Canopy Growth have lost 3% over the past month, weighing on the index's performance.
Packaging company KushCo has done quite well in recent weeks, gaining almost 7.5%.
But Acreage Holdings, Canopy Rivers and OrganiGram have suffered losses over the past month. And they're severely trailing the Horizons Marijuana ETF.
Cannabis is in a transformational stage. In Canada, the adult-use market isn't even a year old. And the edibles and infused products market will go live in just a few months. In the U.S., legalization continues to expand one state at a time.
Globally, marijuana will be a $200 billion market by the end of the next decade. But right now, it's still young, though rapidly growing and woven tightly to the industry's biggest player.
Here's to high returns,
Matthew | | | | |  | | | | | |  |  | | | | Marc Lichtenfeld | July 6, 2019 When things go right for small, innovative companies in the biotech sector, the amount of money that can be made is mind-boggling. Read More | | | | |  | | | | David Fessler | July 3, 2019 Here are two battery storage stocks that can expose you to the fastest-growing area of the energy sector. Read More | | | | |  | | | | Matthew Carr | July 2, 2019 Who are the biggest winners and losers in the cannabis space? Find out here. Read More | | | | | | | | | | |
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