Why Cannabis Companies Can’t Keep Their CEOs
Those are just a handful of cannabis CEOs we said sayonara to in the past year.
They’ve been fired, have retired or have stepped down, exhausted after the long battle to take their companies public.
On Friday, pot stocks were rocked once more by the latest C-suite exit – the departure of Aurora Cannabis (NYSE: ACB) CEO Terry Booth.
This is a double dose of punishment for Aurora investors. Chief Corporate Officer – and arguably the face of the company – Cam Battley stepped down in December.
As they waved bon voyage to Booth, the company also announced it was eliminating roughly 17% of its workforce. Aurora is slashing its head count by 500, with a quarter of those jobs being corporate positions.
Normally, cost reduction measures are met with cheers on Wall Street.
But Aurora then reported preliminary second quarter results. The Canadian licensed producer forecast net cannabis revenue between CA$50 million and CA$54 million. That’s well short of the CA$70.8 million analysts were expecting.
I believe this was the real catalyst for Friday’s share price drop.
The past year has been a tough one for Aurora shares. They’ve tumbled more than 77%, which is worse than the Horizons Marijuana Life Sciences Index ETF’s (OTC: HMLSF) performance.
But let’s get down to brass tacks.
Cannabis suffered a horrific 2019 – in Canada and the U.S.
I transitioned my focus last year from Canada to the U.S. because I thought that’s where there would be more upside. And fundamentally, there is.
But in reality, Canada has been a malignancy in the pot stock ecosystem.
We had the scandals from CannTrust Holdings (NYSE: CTST) – which led to Aceto’s firing. We had the massive losses from Canopy Growth Corp. (NYSE: CGC) – which led to Linton’s ousting. And we had the bumbling of the Canadian market’s physical expansion by both companies and government.
This led to share price drops, which triggered a capital crunch and bled into U.S. share prices. And then the U.S. stepped in with a deadly vaping crisis from the illicit market to close out the year.
It became a closed-loop system of chaos.
Executives are going to get the ax or be asked to show themselves out in that environment.
And the rash of C-suite exits wasn’t unique to cannabis. In 2019, a record number of CEOs grabbed their parachutes and jumped.
When times are tough, there’s a need for a change in leadership.
When times are good, there’s an opportunity to go out on top.
When times are “meh,” everything stays the same.
Booth’s exit, as well as those of other cannabis CEOs who left before him, is likely a long-term positive for the industry. Running a public company isn’t like running a private one. You must answer to analysts, shareholders and high expectations.
And the ones who are gone couldn’t accomplish that.
The High Five
Below are our 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) Akerna (Nasdaq: KERN) will report second quarter earnings on Wednesday after the closing bell.
Wall Street is looking for $3.17 million in revenue with a loss of $0.23 per share.
2) Neptune Wellness Solutions (Nasdaq: NEPT) will report third quarter results on Thursday, prior to the market’s open.
Expectations are for a 44.4% increase in revenue to $7.15 million with a loss of $0.03 per share.
The company has been transitioning from krill oil to cannabis and hemp extraction. But it’s been slow going. And over the past three quarterly reports, shares have seen one-day double-digit drops.
3) Canopy Growth Corp. (NYSE: CGC) will release third quarter results on Friday before the opening bell. This is the report that matters the most.
Analysts are looking for a 25.8% increase in revenue to CA$104.02 million with an increase in the loss per share to CA$0.49.
The Canadian cannabis giant has missed earnings for four consecutive quarters.
4) Canopy Rivers (OTC: CNPOF) is Canopy Growth’s venture capital arm. It’ll also report earnings on Friday morning. The company’s CEO, Narbe Alexandrian, was appointed to the National Cannabis Industry Association’s board of directors last week.
The company has beaten or met Wall Street’s expectations in three of the past four quarters. Though don’t be surprised if the move is in tandem with Canopy’s.
5) InMed Pharmaceuticals (OTC: IMLFF) will release second quarter results on Friday before the opening bell. The clinical-stage biopharmaceutical is leading the charge in using cannabinol to treat diseases.
The tiny biotech has surged more than 32.5%.
Year to date, InMed is destroying the rest of the High Five and our benchmark, the Horizons Marijuana Life Sciences Index ETF.
It’s been a tumultuous couple of weeks for pot stocks after their blazing start to 2020. Aurora’s announcement triggered an industrywide sell-off on Friday. But the big market mover this week will be Canopy’s earnings.
As I’ve said in the past, where Canopy goes, so goes the industry. It’s the heaviest-weighted component of many pot stock indexes. So all ears will be tuned to what Canopy has to say.
If you have a pot stock in mind that you’d like me to discuss here, leave a comment below.
Here’s to high returns,
About Matthew Carr
Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.