Is Ontario Government Responsible for Bruce Linton Firing?

Is Ontario Government Responsible for Bruce Linton Firing?
Is Ontario Government Responsible for Bruce Linton Firing?

  • Canopy’s CEO was forced out after it disappointed the market with latest earnings results
  • Canada’s largest province, Ontario, has been the country’s biggest failure in providing retail access to cannabis
  • Opening “just a few stores” in the province immediately caused monthly sales to more than double
  • Canada’s largest pot company has been virtually shut out of Canada’s largest cannabis market 


Canopy Growth Corp (US: CGC / CAN: WEED) “disappointed the market” with its latest earnings. Canopy’s largest shareholder, Constellation Brands (US: STZ)  expressed public dissatisfaction with the results. Canopy’s Board ousts CEO Bruce Linton.

Seems pretty straightforward. Not quite.

The question that hasn’t been asked in the mainstream media is why were Canopy Growth’s revenues below expectations? The Seed Investor has already pointed investors toward the real culprit here: the government of Ontario and Doug Ford’s Conservative government.

In a recent article, TSI noted how (finally) opening up just a few retail cannabis stores – 6 months after legalization -- immediately caused cannabis revenues to more than double from between $7 - $8 million per month to $19.6 million per month.

Cannabis inventories have been building among Canadian LP’s. The mainstream media was all over this, but again no one was asking “why”?
TSI answered that question as well: look to Ontario.
 
It’s perfectly clear why retail cannabis sales in Canada have fallen short of expectations in the opening months of national legalization: provincial incompetence. Canadian pot inventories would almost certainly have fallen, not risen if Canada’s provinces had rolled out legal cannabis more effectively.

This can be shown with (you guessed it) more facts. A quick look at the best and worst province in rolling out legal cannabis illustrates this point.

The province of Alberta (population 4.1 million) leads the way in cannabis legalization. The provincial government has set a first-year goal of licensing 250 cannabis retail outlets. Roughly 100 have already been opened, and new dispensaries are sprouting up each week.

Then there is Ontario, Canada’s largest province, with a population of 14+ million. It took the provincial government 6 months from legalization (April 1, 2019) to open its first legal dispensary. As of today, there are only 11 in the entire province.

The entire build-up in cannabis inventories in Canada can be attributed to the absurd retail bottleneck in Ontario. Other provinces (notably British Columbia) have compounded this retail bottleneck.

The impact on Canadian cannabis companies and the industry as a whole is clear…except to the mainstream media. But TSI connected the dots here too.
 
What would those monthly sales numbers look like in Ontario if the province had 100 legal cannabis dispensaries open for business rather than a mere 11? It would be overly simplistic to do a straight-line projection and suggest that Ontario would already be registering $200 million per month in cannabis sales ($2.4 billion per annum).

Clearly, however, if the government of Ontario had even approached the efficiency of Alberta, then Ontario’s monthly cannabis revenues today would be much closer to $200 million per month than the roughly $20 million recorded in April.

 
[Editor's note: there are now 22 retail cannabis stores open in Ontario.]

What would have been the impact on Canopy’s topline revenues and bottom-line loss if Ontario’s “free enterprise” government had given Canada’s largest cannabis company reasonable access to Canada’s single largest cannabis market?

We’ll never know. If Ontario had been responsible in opening up dispensaries, a conservative estimate is that Canopy could have generated another $10 - $20 million in sales in that province alone. And Bruce Linton would still be the company’s CEO today.

Actions have consequences.

Ontario’s government stumbled badly in opening up legal cannabis commerce. The CEO of Canada’s largest pot company has paid the price.

As Canada’s largest cannabis market continues to be closed off for much of the cannabis industry, both companies and investors will be asking themselves a question. Does Ontario have another agenda here?

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