Aurora Cannabis (ACB), Canopy Growth (CGC), Aphria and Canntrust – Casualties of Cannabis

James West
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Aurora Cannabis Inc (TSX:ACB) (NYSE:ACB) (FRA:21P)’s Cam Battley, Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) ‘s Bruce Linton, Aphria Inc (TSX:APHA) (NYSE:APHA) (FRA:10E)’s Vic Neufeld, and  CannTrust Holdings Inc (NYSE:CTST) (TSX:TRST) (FRA:C9S)’s Peter Aceto all share a common thread: they’ve left the companies they helped run under clouds of doubt.

If Bruce Linton’s surprise firing wasn’t a harbinger of doom for the whole sector, Cam Battley’s resignation from the beleaguered behemoth of Canadian cannabis certainly is.

Creaking under a massively diluted cap structure, the fastest building, now fastest stopping, cannabis cultivation capacity developer is starting to look more like the poster child for the excessive ambition that has characterized the cannabis industry from its beginning.

Cam is obviously being dressed for the role of sacrificial lamb, and as the company’s most visible promoter, that is no surprise. But what is a surprise is that CEO Terry Booth seems to be insulated from any criticism, at least overtly.

As “Chief Corporate Officer” – a title that always wreaked of ambiguity – the default perception might be that this buying spree that saw outrageous valuations paid for Med Releaf,  ($3.2 billion) and CanniMed ($1.1 billion) was all Cam’s fault – for which he must now walk the plank for the entire company.

To me, the “buy everything” approach of Aurora never made much sense, though Cam Battley’s sincere and well-articulated explanations were always plausible, and so not easily assailed.

Now that 2020 hindsight is upon us, we can all claim to be visionaries.

In Bruce’s case, a clash of cultures came to a head at Canopy controlling shareholder Constellation Brands, Inc. (NYSE:STZ) annual investor day, where  Bruce made some unfortunate remarks that demonstrated a lack of continuity between his message and Constellation’s.

Vic Neufeld became the sacrificial lamb for all the alleged cloak-and-dagger self-dealings of Aphria and its largest shareholders, the Seruya brothers.

Peter Aceto is a real head-scratcher: How does a guy with a exemplary banking career as Tangerine (formerly ING DIRECT) CEO become a rule-flouting leader of a rogue cannabis operation?

As a media outlet, we are not allowed to have an opinion – especially since the companies we cover were sometimes financial contributors to our revenue.  But as a cannabis investor, I not only do have an opinion, but I have numerous scars where my opinion’s unfortunate misalignment with reality cost me dearly.

Back in 2017/18 when all this was going in, we lived in a world where the presumption was that there was never going to be enough legal cannabis to supply the exploding demand – a premise now rendered thoroughly laughable by events. To justify the  shopping binge as some kind of genius defensive move was the apparently agreed upon broadcast bite agreed to by management, and the Chief Corporate Officer duly amplified that message on all media platforms including this one.

For a little while, the sector exuberance that saw Canopy Growth reach a $27 billion valuation appeared reasonable. Analysts’ bullish projections anticipated a global industry worth $192 billion by 2025, if BMO’s Tammy Chen and Peter Sklar were to be believed.

BMO’s outlook as a credible investor in the cannabis space might be in jeopardy too though in 2020, after the Illinois Municipal Retirement Fund yanked roughly  $1.1 billion from BMO Global Asset Management due to poor performance.

At any rate, the rolling heads is just yet another symptom of an industry transforming from a frontier-style land grab to a maturing integrated consumer packaged goods industry with pharmaceutical implications.

In such volatile markets, heads always roll when a prolonged correction makes everyone look for someone to blame for their losses. Usually it’s not the main culprits who become the victims of sacrifice, but the most visible.

Watch for yesterday’s heroes to reappear at the helms of various new ships as cannabis 3.0 picks up steam in 2020.

James West

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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