EUR 850.00 For Business Accounts Only

Morningstar | Linton Out as CEO, but We See No Change to Canopy’s Strategy; Shares Look Undervalued. See Updated Analyst Note from 03 Jul 2019

On the morning of July 3, Canopy Growth announced the departure of co-CEO Bruce Linton. Co-CEO Mark Zekulin is now sole CEO, although this may be temporary as the board of directors has launched a search for a new CEO. The company’s press release phrased the departure as mutual, although Linton has stated that he was fired. Despite the disagreement on how the decision was made, the reason appears to be disappointment in the company’s recently reported fourth-quarter results, particularly by major investor Constellation Brands.

Given that the company and industry are still in the growth stage, we are surprised to see the short-term focus on near-term results. That being said, as outsiders, we aren’t fully in tune with everything that may have led to Linton’s departure. Nevertheless, we do not expect to see a major shift in strategy. Zekulin has been with the company since its early days and is very familiar with the company. In addition, the deal to acquire Acreage Holdings upon U.S. federal legalization remains in place, and Constellation Brands remains as a strategic investor and partner.

Our $54 and CAD 71 per share fair value estimates and no-moat rating are unchanged. We think shares are undervalued at the current price and see Canopy as an attractive way to play U.S. legalization trends and the development of cannabis-infused consumer products.

For more details on the cannabis industry and our market forecasts, please see our observer, “Green Rush: Cannabis Market Will Grow by 9 Times by 2030 Amid Widening Legalization.”