Three years into adult-use legalization – fewer than 1 in 5 CEOs who were there from the kick-off are still there
Since the kick-off of adult use legalization on October 17, 2018, to say Canadian cannabis companies have had a rough go of it would be an understatement. Many valuations crashed by more than 90%, forecasts of positive EBITDA were endlessly delayed, and some companies even flamed out into complete insolvency. As companies scrambled to change course and recalibrate, many of them looked to executive adjustments as a means to right the ship.
An analysis of 52 Canadian cannabis companies that were publicly traded at the time of adult-use legalization revealed the extent of the shake-up. Of the 53 CEOs at the time, 43 have since departed from their role as CEO. (If you are wondering why there are 53 CEOs across 52 companies, this is due to Canopy Growth Corporation (NASDAQ: CGC) having a co-CEO arrangement at the time.) Reasons varied from resignation, to termination, to retirement, and the net result has been a departure rate of 81.1%. Even before the first year of adult-use legalization was in the books, more than 30% of the industry’s public CEOs were out of the role.
CEO departures in the industry were not limited to companies of a specific scale and were seen at the largest companies as well as its smallest single site operators. The original “big four” of Canadian cannabis: Aphria Inc., Aurora Cannabis Inc. (NASDAQ: ACB), Canopy, and Tilray Inc. (NASDAQ: TLRY), have all seen their CEOs depart since the introduction of adult-use. Regardless of size, shareholder ire has no doubt played a key role in the industry’s CEO exits. A high-profile example of this occurred just recently with the board dismissal of HEXO Corp’s (NASDAQ: HEXO) CEO, Sebastien St. Louis, following accusations of “negligent decisions and poor financial performance” by shareholder Adam Arviv.
In the majority of cases, CEO departures were fairly typical, however, there were a few head-turning exits. CannTrust’s CEO Peter Aceto notably got the axe on July 25, 2019, after an investigation by a special committee of its board of directors cited the company’s unlicensed growing activities and “uncovered new information” as the basis to terminate him with cause. In a more bizarre case, when RavenQuest BioMed Inc.’s CEO, George Robinson, resigned on April 29, 2020, his old company accused him of taking off with the company’s records in lieu of pay – an accusation he would later deny.
Despite the overall industry tumult, not all departures were the result of an executive being thrown out or quitting in the face of poor performance. As the industry consolidated, 5 CEOs found themselves leaving their role as a result of their company being acquired by a larger player such as when Newstrike Brands Ltd. was purchased by HEXO. Given that HEXO would be forced to write down Newstrike’s assets to a paltry fraction of the $341.8M they paid for them in relatively short order as the market shifted, this was probably one of the better ways to leave as CEO. In other cases, the CEO at the time of legalization was filling in on an interim basis while the company completed their recruitment process of a full-time CEO, as was the case with The Supreme Cannabis Company which has since been acquired by Canopy.
Of the 53 CEOs at the outset, 10 are still running their public companies as CEO just as they were at the beginning of adult-use legalization. A few notable examples include Norton Singhavon at Avant Brands (TSX: AVNT), Michael A. DeGiglio at Village Farms International Inc. (NASDAQ: VFF), and Niel Marotta at Indiva Limited (TSXV: NDVA). Given the overwhelming challenges that the legal cannabis industry has brought on executives and the exit of their peers, maintaining the mantle of CEO has been no easy feat.
To put things in perspective, it is important to remember that executive turnover is not uncommon as companies evolve and mature through their corporate lifecycle. Whenever things are going badly though, it tends to be a lot more common.
Information for this commentary was found via Sedar. The author has no securities or affiliations related to this organization or any organization mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.