Executive turnover in Canada’s cannabis sector is accelerating, with another chief executive pushed out amid an industry-wide effort to turn money-losing pot producers into profitable ones.
Supreme Cannabis Co. Inc. has replaced CEO Navdeep Dhaliwal with board member Colin Moore, who will serve as interim CEO. The move extends months of senior management shuffles at the cannabis producer, which has seen its share price plummet 81 per cent from its peak.
Supreme attributes the turnover to its efforts to morph into a consumer products company, broadening its scope from the production of bulk cannabis. In October, the company also announced the departure of co-founder John Fowler, who had once served as Supreme’s CEO, and much of the executive team has changed in the past 12 months.
This kind of managerial evolution is one of the industry’s hottest trends, with cannabis companies pushing out founders and top executives to bring in leaders with experience in more mature consumer products industries. Mr. Moore, Supreme’s interim CEO, used to run Starbucks Canada. (Mr. Dhaliwal will remain on Supreme’s board of directors.)
The struggle, however, is in luring quality leaders. “With the challenging times in the cannabis sector, it has become more difficult for companies to attract top talent from the consumer products sector – or any sector for that matter," said Les Gombik, an executive recruiter who works with cannabis companies.
While many executive candidates like a challenge, “they are also smart enough to ask the tough questions to determine if turnaround prospects are realistic," he said, adding that these leaders also “command a premium both on cash compensation and upside potential [stock or stock options]."
Matching pay expectations is harder to do in this market because many investors have been burned and now demand that companies get their balances sheets in order. The Horizons Marijuana Life Sciences Index ETF, which broadly tracks the industry, has fallen 68 per cent from its peak in October, 2018.
There have also been many jobs to fill. Supreme’s turnover follows the firing of former Canopy Growth Corp. chief executive Bruce Linton this summer, as well as the departures of top leaders at Aphria Inc. last January. Both the chairman and the CEO of CannTrust Holdings Inc. also exited this summer after Health Canada discovered the company was growing cannabis in unlicensed rooms.
Most recently, Aurora fired chief corporate officer Cam Battley in late December. At the time of his departure, it was not clear whether he left on his own accord, but Aurora later clarified in a statement to The Globe and Mail that Mr. Battley “was asked to step away from his role."
Despite the odds, new hires are possible. On Monday, Canadian-listed cannabis company Harvest Health & Recreation Inc. announced the hiring of Ron Goodson as chief operating officer. Mr. Goodson previously spent 35 years as a vice-president at PepsiCo Inc.
Like much of the sector, Supreme’s shares have struggled of late. The company once made a name for itself as a wholesaler, selling bulk, unfinished cannabis to other licensed producers. This market in particular is now awash in supply because more greenhouses have been licensed to grow marijuana, and the supply glut has depressed prices.
When the company last reported quarterly earnings in November, its $11.4-million in revenue was less than half of analysts’ average expectations. The company is now focused on finishing more of its product in-house and selling it through its own brands – the model most associated with mature consumer products companies.
Although a number of producers are trying to pivot in the same way, Supreme has some existing brand appeal that could help with its change in strategy. The company’s “transition away from wholesale, expected in full by the third fiscal quarter, couldn’t come at a better time, as we believe consumers have begun to prefer certain brands, where Supreme’s 7Acres should stand out,” CIBC World Markets analyst John Zamparo wrote in a note to clients after the company reported earnings in November.
Supreme declined to comment.
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