3 Cannabis Stock CEOs Who May Lose Their Jobs

Article by Sean Williams, Motley Fool

3 Cannabis Stock CEOs Who May Lose Their Jobs Pot stock valuations have plummeted, and these CEOs could pay the price for this underperformance. Sean Williams Sean Williams

For a long time, cannabis investors could seemingly do no wrong. Prior to April 2019, the vast majority of pot stocks had rallied by a triple-digit or quadruple-digit percentage, with the expectation that ongoing legalizations throughout North America and around the world would move black-market transactions into legal channels over time.

However, this hasn’t proved to be the case. Canada has contended with an assortment of supply concerns, with U.S. marijuana stocks hampered by high tax rates on legal product in a handful of key markets. The North American pot industry has also struggled to gain access to traditional forms of financing. Add on the coronavirus disease 2019 (COVID-19) pandemic for good measure, and you can see why marijuana stocks have been clobbered over the past 14-plus months.

But it’s not just pot stock shareholders that need to be concerned with the underperformance of the cannabis industry. A number of marijuana stock CEOs look to be on the hot seat and in danger of losing their jobs if things don’t turn around very soon.

Quite a few pot stock CEOs have already stepped down or been shown the door

If you think I’m being a bit overdramatic, think again. Constellation Brands (NYSE:STZ) groomed its Chief Financial Officer David Klein for Canopy Growth’s (NYSE:CGC) top job after co-CEOs Bruce Linton and Mark Zekulin were let go months apart from each other. Constellation, which holds a 38% stake in Canopy Growth, had implied that Canopy’s widening losses were unacceptable and a drain on its operating income statements. Since taking over the lead role at Canopy, Constellation’s former CFO David Klein has permanently closed 3 million square feet of cultivation space and overseen multiple rounds of layoffs.

The pressure also appeared to get the better of Terry Booth, the now-former CEO of Aurora Cannabis (NYSE:ACB). Even though Booth stepped down and retired (i.e., wasn’t fired), the writing appeared to be on the wall that he’d be shown the door if he hadn’t voluntarily retired. At one time pegged as the world’s leading legal pot producer, Aurora has halted construction at two of its largest facilities and sold off a 1-million-square-foot greenhouse. Additionally, in spite of having access to two dozen markets outside of Canada, Aurora’s international sales have been relatively anemic. With share-based dilution crushing shareholders, Booth looked like a likely candidate on the chopping block entering 2020.

Even Aphria’s (NASDAQ:APHA) longtime CEO Vic Neufeld stepped down in January 2019. Though Neufeld cited health and family reasons for his departure, the announcement that he would leave came just five weeks after a short-seller report alleged wrongdoing at Aphria. Despite many of these allegations being proved inaccurate, it was shown that Neufeld held a conflict of interest in Aphria’s Latin American acquisition. Had Neufeld not stepped down in January, he would likely have been pressured to do so months later.

These cannabis stock CEOs may lose their jobs next

If we’ve learned anything about the marijuana space over the past year, it’s that the time for promises is over. It’s put up or shut up time for these businesses, and significant underperformance will simply not be tolerated by investors for any significant length of time. With that being said, the following three pot stock CEOs may be next on the chopping block.

HEXO CEO: Sebastien St-Louis

In my view, the likeliest CEO to get the boot is Sebastien St-Louis, who leads Quebec-based HEXO (NYSE:HEXO).

By the second quarter of 2019, HEXO looked to be on track as a major Canadian player. The company’s flagship Gatineau facility was coming along on schedule, and HEXO had boosted its production capacity via the Newstrike Brands acquisition. Further, the company had struck the largest wholesale agreement with a single province in 2018 — a 200,000 kilo-in-aggregate deal over five years with Quebec.

Yet, one year later, HEXO has made plans to close and sell the Niagara facility acquired from Newstrike, and has written down the vast majority of that deal. St-Louis has also overseen layoffs to conserve capital, and has idled some of the company’s cultivation space at Gatineau.

But what might be most damning of all is commentary from St-Louis during a conference call with analysts last year that suggested HEXO would need to earn 20% market share in Canada to become profitable. That’s an insane task given that HEXO is selling its stock to raise capital and halting some of its production to reduce costs.

Cronos Group CEO: Michael Gorenstein

Another marijuana stock CEO that should consider himself on the hot seat is Cronos Group’s (NASDAQ:CRON) Michael Gorenstein.

On the surface, Gorenstein deserves a lot of credit for helping to nab Cronos an equity investor. For those who may recall, Altria Group became a 45% equity holder in Cronos in March 2019. In return, Cronos received $1.8 billion, which was perfect given that the company only had a little more than $20 million in cash on hand prior to the deal closing. The expectation was that Cronos would use this cash to enter new markets and expand its line of high-margin derivatives. Unfortunately, investors have been sorely disappointed since March 2019.

Though Cronos did acquire Redwood Holdings for $300 million to add the Lord Jones brand of cannabidiol (CBD) beauty products to its portfolio, the buzz surrounding CBD products in the U.S. has died down in a big way. With the U.S. Food and Drug Administration putting its foot down on CBD as an additive to food and beverages, CBD sales haven’t been turning heads.

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