Dec 9, 2019

Linton to new Canopy CEO: Don't 'squander' cash in the bank

New Canopy CEO should leverage cash to create 'profitable enterprise': Linton


Security Not Found

The stock symbol {{StockChart.Ric}} does not exist

See Full Stock Page »

As Canadian cannabis companies strive for profits, the former head of the country’s biggest pot producer is urging its incoming CEO to resist a quick fix aimed at appeasing shareholders and instead focus on creating long-term growth opportunities.

“I think his chance right now is to hit a better balance than say, ‘Hey look, I can do earnings per share’ … if you get to the point where you give a dividend, you [may as well] say, ‘I’ve extinguished any imaginative thought.’ This is not a dividend sector,” said Bruce Linton, co-founder and former co-CEO of Canopy Growth Corp., in an interview with BNN Bloomberg Monday.

His comments come after Smiths Falls, Ont.-based Canopy announced the appointment of David Klein as its new chief executive. Klein is currently executive vice-president and chief financial officer at alcohol conglomerate Constellation Brands Inc. and also serves as Canopy’s chair. Constellation became Canopy’s largest shareholder in November 2018 when it paid $5 billion to acquire a 37-per-cent stake in the company, when Linton was still at the helm.

Linton said there’s investor appetite for companies looking to “take over the world” by creating intellectual property and novel products, even if they aren’t profitable.

“If you say I have a short-term ambition, I’d like to be profitable and report earnings per share across the whole company, with $5 billion in the bank or $3.5 [billion] as they now have, I think it’s squandering the purpose of raising the capital, which is to create a durable advantage, especially now when others don’t have cash,” Linton said.

Linton said that while he was “hopeful” the new hire would be a woman from the technology sector, he thinks Klein, who will take the reins as CEO and step down as Canopy’s chair on Jan. 14, is a “phenomenal guy” and the news of his appointment is “fantastic.”

“If you’re going to have somebody from [the beverage industry], I don’t know that there’s anybody more trusted, and the street’s comfortable with, than David in his role at Constellation.”

Linton said his caveat is that he hopes Klein will sell his shares in Constellation so that he is “100 per cent aligned with Canopy shareholders and not conflicted.”

In an analyst note released Monday, Cantor Fitzgerald’s Pablo Zuanic said he sees a two-thirds probability of Constellation making a bid in the near-term to take full ownership of Canopy. He noted that Constellation CEO Bill Newlands is divesting assets to shift more attention to Canopy, “so an outright purchase … could be seen as a strategic shift.”

Linton also said he expects Klein will be better than he was at staying in-line with Constellation’s mandate.

“There are certain things that the majority owner expects you do to, which might create boundaries that if you wanted to be a fully-free, build-this-thing-as-you-can CEO, that wouldn’t work. I think this is the best balance because David understands some of those boundaries, ones that I didn’t necessarily agree with, which is why I’m on TV rather than [in] the CEO job.”

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new — and controversial — Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.