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Canopy's global ambitions may define search for Linton successor

'It's not necessarily a reflection of the lack of skills of the incumbent CEO, but the desire for a different skill set to build that company to another level'

Bruce Linton.
Bruce Linton.

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The Bruce Linton era is over at Canopy Growth Corp., but just what the company is seeking in a successor is not yet clear.

On Wednesday the cannabis giant announced that its founder and long-time chief executive was departing, a split Linton himself described as a termination.

Linton’s co-CEO, Mark Zekulin, will fill the role solo on a temporary basis and help the board of directors launch a search for a permanent leader.

While Canopy said little about the criteria on which it would base that search, the “global” ambitions of its biggest investor may be a significant factor.

“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,” Canopy board director (and Canopy investor Constellation Brands Inc.’s chief financial officer) David Klein said in a press release. “We are also excited to embark upon our next phase of growth as global leader in the cannabis industry.”

Jesse Pytlak, analyst at Cormark Securities, said Canopy has reached something of an “inflection point,” where a Canadian-focused business is expanding beyond its home market.

“I think the board is going to look at someone that has experience scaling a global business,” Pytlak told the Financial Post in an interview. “So someone that’s worked for a large organization that operates in several countries under different regulatory regimes, and knows how to take a business from pretty much its very early stages into a full, complete operating business.”

Linton, who helped found Canopy in 2013, said in the press release that creating the company began with “an abandoned chocolate factory and a vision.” That vision would grow to include designs on much more than just the Canadian cannabis market, including the United States, Europe and Latin America.

On Linton’s watch, Canopy secured a landmark $5-billion investment from U.S.-based alcohol giant Constellation Brands, and put together a number of deals with the cash. One deal was for New York City-headquartered cannabis company Acreage Holdings Inc., an acquisition that hinges on U.S. federal approval of growing and selling marijuana.

Canopy also announced recently it had agreed to pay around $73.8 million for U.K.-based skincare and well-being company This Works Products Ltd. and approximately $342.9 million for German pharma-firm C³ Cannabinoid Compound Co.

Canaccord Genuity analyst Matt Bottomley wrote in a report that “virtually no details were provided with respect to the timing and rationale behind” Linton’s departure. Linton merely said in the release that both he and the board had agreed “my turn is over.”

“In our view, we are surprised by this headline, but are also aware of Constellation Brands’ displeasure in Canopy’s recent FQ4 earnings, which represented a rather large miss on profitability,” Bottomley wrote.

Shares of Canopy closed nearly two per cent higher in Toronto on Wednesday, finishing the day at $53.52.

Richard Leblanc, professor of governance, law and ethics at Toronto’s York University, said boards of cannabis companies have lagged others when it comes to their maturity. And a founder’s skills, he said, may not necessarily keep pace with the “maturation” of a company and its corporate governance.

“It’s a different skill set building a company from scratch,” Leblanc said. “So it’s not necessarily a reflection of the lack of skills of the incumbent CEO, but the desire for a different skill set to build that company to another level.”

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Copyright Postmedia Network Inc., 2019

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