Along with most of its peers, Canopy Growth (CGC) (WEED) recently reported pretty dismal quarterly results. The company’s losses grew from its last quarter. Its stock price has been tumbling on account of its recent financials and lawsuits. Fund managers and investors are suggesting that the company’s headwinds are the result of terrible governance.
Canopy Growth’s management and governance have been unstable all year. Bruce Linton, one of the company’s founders, stepped down from his position as CEO in July 2019. There’s word that Linton was ousted from the company. As current CEO Mark Zekulin is covering the role only in the interim, investors believe the current leadership vacuum is harming the company. It also looks like the current management is struggling to steer the company back on track.
Brian Madden of Goodreid Investment said, “Most importantly, the governance has been terrible around almost all of these issuers including Canopy where the CEO stepped down or was ousted, depending on who you talk to.” Madden also said he won’t invest in Canopy stock, as it’s too expensive.
Zekulin has announced that he might leave the company by the end of this year. He also said that the company hasn’t yet reached a decision on who’s going to succeed him as CEO. Investors and fund managers are hesitant to invest, as there are a lot of uncertainties in the industry. As the industry landscape keeps changing due to continued waves of legalization, companies’ market shares are anything but certain.
Canopy Growth’s recent misfortunes
Canopy Growth disappointed investors with its second-quarter earnings results on November 14. The company reported revenue of $77 million in the second quarter. Even though this implied an increase from last year’s second-quarter revenue of $23.3 million, it reflected a fall of 15% from the previous quarter. The company also saw a net loss of almost $375 million, implying a decline of 13% from last year’s second quarter.
Further, the company faces lawsuits from law firms Ademi & O’Reilly, Pomerantz LLP, and Rosen. The firms filed lawsuits on behalf of the company’s investors. They aim to investigate alleged misleading statements provided by the company. The investigation is particularly concerned with 32.7 million Canadian dollars reported by Canopy on returns and pricing adjustments.
In addition to this, the company is also experiencing an oversupply of softgels and oils. Retail operators reported stagnant inventories and increasing returns of these products to stores. Management therefore decided to adjust its pricing to move these products in the market.