Canopy ‘never been better,’ says interim CEO as investor set to take related loss

Canopy ‘never been better,’ says interim CEO as investor set to take related loss
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TORONTO — Canopy Growth Corp.’s interim chief executive says the mood at the cannabis producer has “never been better,” a comment that comes two months after its charismatic co-founder was ousted from the top job and as pressure mounts for the company to reach profitability.

Mark Zekulin said the Smiths Falls, Ont.-based company is shifting from “building” mode and hefty investments in infrastructure and expansion to “operating” mode.

However, he notes that the move is separate from the transition of leadership underway from the previous CEO Bruce Linton.

“This is actually the natural progression of where we should be, where we want to be, and how we maximize shareholder value,” he said in an interview.

His comments come one week after Canopy’s largest investor, Constellation Brands, said it expects to record a US$54.8-million loss in its current quarter from its $5-billion investment into the Smiths Falls, Ont.-based company.

The New York-based alcohol giant had said in June it was “not pleased” with Canopy’s earnings as it recorded a related US$106-million loss, and that it was working with the weed producer to “win markets” and pave a “path to profitability.”  Linton’s surprise termination from the top job followed in July.

Canopy said in August, as it reported its latest quarterly earnings, that the cannabis giant expects profitability in three to five years. Its results for the first quarter of its 2020 financial year fell short of expectations, and some analysts said that Canopy was losing market share.

Zekulin said he believes Canopy continues to be “on top,” and this position will be further reinforced once its harvest of high-THC product from last quarter reaches shelves and when edibles are legalized.

“Our ability to put that into the system, plus to have the value added products that we have been working coming into the market, I’m very confident in our ability that we have the number one market share and will continue to have the number one market share in Canada.”

Zekulin said the company is “on pace” with the rollout of its products, such as beverages developed in conjunction with Constellation Brands.

The regulations for edibles and other types of ingestible cannabis products come into force on Oct. 17, but the earliest these items can be sold legally is mid-December due to the 60-day mandatory notice to be given to Health Canada.

“I think there will be some products in market for that Christmas, New Year’s cheers, but, ultimately most of those products will start to roll out later,” said Zekulin.

Zekulin, formerly co-CEO alongside Linton, said last month that he would leave the company once a suitable CEO is found.

He did not respond to a question on why he was leaving the company, and said the recruitment process was well underway.

“There are a number of excellent candidates and I’m really excited to see the calibre of people we attracted,” he said. “That being said, taking a step back, this company is bigger than one person. It’s not about Bruce, it’s not about Mark.”

Cannabis stocks have been under pressure in recent months from a variety of factors, including regulatory woes plaguing licensed producer CannTrust Holdings Corp. Health Canada has been investigating the company after the regulator discovered CannTrust was growing cannabis in several rooms at its Ontario greenhouse facility prior to receiving the appropriate government approvals.

Last month, CannTrust hired Greenhill & Co. to explore a sale of the company and other strategic alternatives.

When asked whether Canopy would be interested, Zekulin said he does not foresee the need for more Canadian assets.

“Without directly speaking to CannTrust and its portfolio… We have built all of the pieces that we need to succeed in the long-term.”

Companies in this story: (TSX:WEED)

Armina Ligaya, The Canadian Press


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