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Canopy Growth to Name a New CEO by End of 2019: Will It Be Enough to Turn the Stock Around?

By David Jagielski - Oct 1, 2019 at 7:15AM

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Addressing the company's mounting losses is going to be a key area of focus for the new boss.

When Canopy Growth (CGC 4.76%) decided to part ways with Bruce Linton back in July, it shook the cannabis industry in a big way. Linton was, after all, a big part of the company's growth. And he was often seen as its best salesman, always selling investors on the moves the company made, which definitely paid off -- it helped Canopy Growth become the largest cannabis stock in the world.

Even now, after some challenging months in the industry, it still stands apart from its peers, with a market cap of more than $8 billion. However, its ability to stay there will depend heavily on whom the company brings in as its new CEO.

New leadership expected to be in place by the end of the year

At the company's annual shareholder meeting, chairman John Bell affirmed that the process that's been months in the making looks to be on track for completion soon. He told shareholders: "With the process well along, we anticipate, and I am confident that, the CEO transition will be completed by the end of the current calendar year."

Businesspeople meet in a conference room as one points at a display of results.

IMAGE SOURCE: GETTY IMAGES.

Mark Zekulin, who previously was co-CEO with Linton and now has the role of CEO all to himself, said that he would be leaving his position once a replacement is found, indicating that the company will likely continue with just one CEO. While no specific names have been thrown out there, Zekulin did say that the candidates considered for the position are from multiple industries, including pharmaceuticals, which could be a significant opportunity for Canopy Growth.

Why a new CEO could be what Canopy Growth needs to help attract investors

It's been nearly a year since marijuana was legalized in Canada for recreational use, and Canopy Growth has lost half of its value during that time. Problems in the industry related to supply with few private retailers open, at least initially, have led to an underwhelming first year for marijuana companies in Canada.

But most recently, for Canopy Growth, it's been the company's losses that have drawn the ire of investors -- and the lack of profitability likely played a key role in the decision to fire Bruce Linton. That's where a new CEO can add significant value: by changing the company's culture and having management focus more on efficiency and reducing costs.

In Canopy Growth's most recent quarter, net revenue of 90.5 million Canadian dollars had nearly quadrupled in just one year. But the problem is that its operating losses also rose by a similar amount, climbing from CA$30.7 million to CA$123.1 million.

Key takeaways

Overall, it's good news for investors that Canopy Growth is progressing in its search for a replacement. The broad search for the new CEO is also a good sign that the company is doing its due diligence in finding the best person for the job. Regardless of which industry the new executive comes from, that person will likely have solid experience and a strong reputation.

And with the company already in a good position to grow, the new CEO will be able to focus on cost reduction and getting closer to breakeven. If management is successful in making strides toward breakeven, Canopy Growth could be a hot buy for 2020.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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