Canopy Growth Takeover a Growing Possibility
New CEO David Klein Places Another Constellation Executive on Canopy Board – LPC
Canopy Growth announced on December 9, 2019 that it had appointed David Klein as its new CEO. Klein is currently the chief financial officer (CFO) of Constellation Brands Inc., which means he will be another voice on the board for the US company. The move led to speculation by some that Constellation is mounting a full Canopy Growth takeover.
Pablo Zuanic, an analyst at Cantor Fitzgerald, said a Canopy Growth takeover by Constellation was a better than two-thirds probability. “On the argument of an improving outlook for the cannabis industry, we think (Constellation) could justify a deal,” he wrote.
Ex-co-CEO Bruce Linton seemed to agree. He said that he saw a case for Constellation breaking up the company down the road, keeping the cannabis beverages division. “What they may say is, ‘We can actually buy the whole thing and about two years after we buy it, sell the medical division for more than we paid for the whole thing,”‘ he said. Linton was forced out in July 2019 after Canopy reported a loss of $670 million over the previous year.
The Toronto Star speculated at the time that a change at the top of Constellation may have sparked a personality conflict. It may have also signalled a new direction for Constellation from allowing Canopy to focus on growth to a more risk-adverse approach. In retrospect, it’s possible that new CEO Bill Newlands envisioned a Canopy Growth takeover from the beginning. With a 38-per-cent stake in the company and four out of seven board members, it was perhaps inevitable.
What Would a Canopy Growth Takeover Mean? – LPC
US takeovers of Canadian companies are nothing new. This would be the first major takeover of a cannabis company. But shareholders definitely liked the new CEO with the stock jumping by 14 per cent on December 9. That’s a far cry from the 41 per cent it lost over the last 12 months. But it’s enough for analysts to speculate that perhaps the worst is over for Canopy Growth – and the industry as a whole.
Canopy Growth takeover rumours would certainly fuel stock price surges as well. Many analysts have said cannabis company consolidation will come at some point. Although Constellation buying Canopy wouldn’t be a consolidation in that sense, it could trigger other moves in the market. With recent losses due to a still-strong cannabis black market and not enough legal storefronts, the industry is ready for change. It’s unfortunate that the world’s largest cannabis company would in effect leave Canadian hands. But ultimately, the recent Constellation move signals more stability in the cannabis industry. At the moment, that’s what it needs most of all.
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