You’re only the worth the value of your severance package.
Or at least, that’s what those in the Canadian cannabis sector appear to think based on what certain executives have made off with after their terminations. The sector itself has seen a turning tide over the last several months. Original founders are being replaced in a hurry as visionary leaders are being forced out by boards of directors in favour of experienced management that knows that consumer packaged goods industry.
There’s an argument to be made that this trend was expected. Visionary leaders that lead a company from start-up to sector domination are few and far between – the likes of which only Jeff Bezos of Amazon and Bill Gates of Microsoft can compare to. Rather, that visionary method of management typically is only able to carry a company so far until the torch must be passed to those experienced in the field with decades worth of service years.
The cannabis sector is no exception to this rule. While die hard connoisseurs may argue that chief executives should be experienced in growing and handling the plant, this is a thought process that doesn’t hold true in any other sector. Executives rather need to be effective at management, supply chain development, sales growth, and a plethora of other tasks that founders are not typically well versed in.
Thus, the trend we’ve seen as of late with the former faces of companies departing what they helped established. And typically, they’re getting paid well to leave. Let’s go through a few.
Canopy Growth Corp (TSX: WEED) (NYSE: CGC)
When it comes to founders departing, nothing was more high profile than that of Bruce Linton being terminated from Canopy Growth. All major networks covered the news, and Linton himself said he was unexpectedly terminated. He was however well compensated for his departure, with company filings identifying that he received $1.5 million via a severance package following his departure. As an added perk, he’s now able to offload his shares in the company without being required to report on his sales.
Mark Zekulin was effectively Linton’s interim replacement, despite the two previously being labelled as co-CEO’s of the firm. While it’s not as clear that Zekulin received an exit package, it’s doubtful that he walked away with nothing. His employment contract stipulated that he was to receive two times his base annual salary if terminated without cause, which would have came out to a cool $1.0 million based on his most recently reported annual salary of $500,000 per year.
The Supreme Cannabis Company (TSX: FIRE)
When it comes to Canadian cannabis, perhaps the second most known name in the sector in terms of founders, is that of John Fowler. While Supreme may not have been the largest entity in the space, those who followed the company in the early days tended to be die-hard investors and thus raised Fowler’s profile among the investment community considerably. Following his sudden departure this last fall from the company, Fowler is believed to have reigned in $300,000 as per the latest management information circular published by the firm, which is the equivalent of his annual salary.
The recently removed Navdeep Dhaliwal, also a long time name at the company, actually received slightly more via his severance package based on company filings. The recently removed chief executive of the firm is estimated to have received $375,000 following his termination.
Aurora Cannabis (TSX: ACB) (NYSE: ACB)
Another high profile departure occurred just a few short weeks ago at that of Aurora Cannabis, arguably the second largest cannabis company within Canada. The firms chief corporate officer, and essentially the face of the company, Cam Battley, was removed from his role in one of the most bizarre instances yet. Aurora seemingly alerted employees via a company wide email on a Friday even, which then leaked to the public the following Saturday before the company formally announced the news. This has become par for the course for Aurora however, with the company now looking to offload properties while keeping investor communications to a minimum.
With respect to Cam, filings from 2018 indicate that in the event of termination or resignation for good reason, “Mr. Battley will be entitled to a payment of 12 months of his base salary and cash bonus, and any and all unvested equity options granted to the Mr. Battley, including but not limited to stock options and RSUs, shall vest immediately.” Based on the latest filings available, the severance figure is estimated to be between $300,000 and $450,000, dependent on the cash bonus feature of his pay structure.
The Green Organic Dutchman (TSX: TGOD)
We’ve saved the best for last today, folks. This morning, it was announced that the President of TGOD, Csaba Reider, as well as the Vice President of Sales, Michael Gibbons were terminated by the company in a cost cutting measure focused on improving cash flow. Reider had been with the firm for a little over a period of twice years, but his severance package was designed like he had been at the firm for much longer.
Under his employment contract, Reider is entitled to 24 months of base salary, bonus, and benefits in the event of termination without cause. The latest management information circular identifies that this amounts to a whopping $1,779,453 as of December 2018 – the largest of anyone on our list, despite TGOD’s relative market position. This figure may be altered as a result of the depressed share price experienced by the firm since the calculation, dependent on the way in which the company elects to determine the bonus package. Regardless, it is simply an outstanding figure.
The Vice President of Sales, Michael Gibbons, is not leaving with nearly the same exit package – filings indicate that he’s entitled to a total $264,600 upon his termination from the firm without cause. While this too is based on a prior share price, its not clear specifically how this figure will be ultimately calculated for the purpose of severance packages.
Thus, it appears that even if you’re a founder of a firm that’s moving at breakneck speed in a growth sector, the best thing you can do for yourself is negotiate a ridiculous severance package sooner rather than later. Doing so will ensure that you’re generating a positive income, even if the company you built is not.
Information for this briefing was found via Sedar, The Green Organic Dutchman, Aurora Cannabis, Supreme Cannabis Company, and Canopy Growth. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.