The world's largest cannabis company has a new CEO, and Wall Street is betting it's a sign that Canopy Growth's investors aren't willing to wait for results to improve

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The world's largest cannabis company has a new CEO, and Wall Street is betting it's a sign that Canopy Growth's investors aren't willing to wait for results to improve
Canopy Growth

REUTERS/Blair Gable

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A worker shakes cocoa nibs into a machine during a tour at a Canopy Growth facility that produces cannabis derivatives in Smiths Falls, Ontario, Canada October 29, 2019

  • Canopy Growth named David Klein, Constellation Brands' CFO, as the cannabis giant's new CEO.
  • He'll be taking over from Mark Zekulin, effective January 14.
  • Analysts were mostly mixed on the news, and pointed out that it's a sign Constellation is doubling down on its control over Canopy Growth.
  • Click here for more BI Prime stories, and subscribe to our weekly cannabis newsletter, Cultivated.

The world's largest cannabis company has a new CEO, and he hails from the company's biggest investor.

David Klein will become Canopy Growth's CEO on January 14, the company said. He's current CFO of Constellation Brands, which owns more than a third of Canopy, and he also chairs Canopy's board of directors.

He'll be taking over from Mark Zekulin, who has held the top job since Canopy's founder, Bruce Linton, was ousted in June.

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Klein will remain on Canopy's board, though the company said it will immediately begin the search for a new chair. NYSE-listed Canopy Growth shares rose over 13% on the news. Constellation Brands, which sells beer, wine, and spirits under brands like Corona and Modelo, dipped just over 1%.

"Canopy Growth sits at the forefront of one of the most exciting new market opportunities in our lifetime," Klein said. "I look forward to working with the team to build on the foundation that has been laid, to develop brands that strongly resonate with consumers, and to capture the market opportunity before us."

The move is yet another sign that Constellation Brands is doubling down on its control over the Canadian cannabis giant after a few disappointing quarters.

Constellation Brands became the first major alcohol producer to invest in the legal cannabis industry after it purchased a 9.9% stake in Canopy Growth in 2017. Constellation upped its stake to over 35% in August of last year, sinking $4 billion into the company.

Since then, Constellation has pushed out founding CEO Bruce Linton, and installed its own execs on Canopy's board.

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Canopy Growth CEO David Klein.

Courtesy of Canopy Growth

Incoming Canopy Growth CEO David Klein.

Analysts give the CEO change mixed reviews

Analysts were mixed on the news.

Analysts at Jefferies said the involvement of a top Constellation executive is a sign that the company is "serious about making the Canopy story work." But they maintained an underperform rating on Canopy's stock.

"Broadly we believe the announcement will be welcomed for a number of reasons," wrote Jefferies analysts Owen Bennett and Ryan Tomkins. "First, it removes the uncertainty hanging over the stock since the summer, with financials not exactly encouraging of late, investors can be more confident fresh leadership and strategy can turnaround recent performance."

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But the analysts say that on balance, "we are not convinced this is a wholly positive result."

They said they're concerned that Constellation may push Canopy to invest in beverages containing THC and CBD, and called that business "unproven."

Stifel analyst Andrew Carter praised the new CEO, writing that because of Klein's position on Canopy's board, the CEO transition "suggests limited disruption with Mr. Klein intimately involved in vetting the company's capabilities and strategic direction."

Carter maintained his outperform rating on Canopy.

Cowen analyst Vivien Azer called the move "not entirely surprising," and said she views Klein's role as a "positive" sign that Constellation Brands is redoubling its effort on "financial stewardship."

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"Given the need for better demand planning and significant cost controls, we are very encouraged by the capabilities that we believe Klein brings to WEED [Canopy Growth], having worked for the best top line growth and most profitable beer company in the U.S.," writes Azer.

Azer maintained her outperform rating on both Constellation Brands and Canopy Growth stock.

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