Investors need to take a hard look at who is running their favourite marijuana companies. Ultimately you’re making a bet on the people who choose the direction of the business.
In this report we rank the CEOs of the top 4 largest cannabis licensed producers on the 3 metrics we think are most important to shareholders: industry experience, integrity, and dedication.
CEOs are judged on their experience in construction, finance, operations, agriculture, export logistics and regulatory.
We judge integrity by looking at the public reputation of past companies each CEO was involved in and the CEO’s personal reputation. We also look out for any red flags such as past legal issues or financial troubles. More years of experience weigh better than less. Successful past business ventures also contribute positively to our integrity score.
To judge dedication we looked at the number of independent corporate boards each CEO is a part of. More board seats means less time can be dedicated to running the company you as a shareholder care the most about. Other business ventures outside of the company are also seen as a negative as they will distract management from focusing on the day-to-day operations of the licensed producer.
Aphria Inc. CEO Vic Neufeld is our winner because of his deep expertise and experience running companies relevant to the business of selling legal marijuana.
More importantly, he has long track record of operating with integrity and of achieving business success. He publicly addressed investor questions on related party transactions head on and is the only CEO to make the public aware of the industry practice of under reporting growing costs.
His experience as a farmer, accountant, and vitamin distributor make him a well-rounded CEO that any investor should be happy to have as the leader of a licensed marijuana producer.
Marijuana Management Final Four
Aphria Inc. (TSE:APH) – CEO Vic Neufeld
Vic Neufeld is the most well-rounded CEO on the list with direct experience in agriculture, finance, pharmaceuticals, vitamins, and international distribution.
Neufeld’s father was a farmer so he grew up with hands-on experience in the agriculture industry.
He also ran Jamieson Laboratories, a provider of vitamins and health supplements, for more than two decades, which provided him with top-shelf experience in operations, international logistics, and navigating health regulations.
Jamieson exports products to 28 countries outside of Canada so Neufeld has significant experience dealing with international partners and setting up supply chains.
Neufeld had a long and well regarded career running Jamieson Laboratories, a vitamin and health supplement supplier. He grew sales from $20 million in 1993 to $250 million by the time he left the company in 2014. His appointment to the board of three other large companies in Canada validates his strong business reputation.
Neufeld sits on 5 boards including Aphria, however with the current divestiture of Aphria’s stake in Liberty Health Sciences he could eventually relinquish his board seat. Five board seats is the most among the four CEOs we analyzed. Only 2 of the 5 board seats are with companies affiliated with Aphria.
Canopy Growth Corp (TSE:WEED) – CEO Bruce Linton
Bruce Linton has significant experience in the tech retailing and software fields, but has no agriculture, construction, finance, or pharmaceutical experience.
He has helped companies navigate Canadian regulations related to trade and foreign policy but was not directly involved in running companies with meaningful international export or import relationships.
He conducted negotiations in Asia in previous roles, but selling software is different from navigating international laws on health products.
Linton’s business history is a concern for us. WebHancer, a company he founded during the dot-com boom, created a spyware computer program that gathers information on users’ browsing habits for advertising purposes.
WebHancer came bundled with certain free software programs and would install itself without user consent. If a user tried to uninstall the program it was designed to cut off their internet access. Many threads can be found with a simple Google search discussing the mechanics of Webhancer and the problems it causes users’ computers.
Two other Linton-run companies have since gone bankrupt and a third, Clearford Industries, is in financial distress.
Mr. Linton sits on 4 boards including Canopy Growth. Three of the board seats are with companies directly related to Canopy Growth.
The Cronos Group (NASDAQ:CRON) – CEO Michael Gorenstein
Michael Gorenstein has spent most of his professional career as a mergers and acquisition attorney and a private equity investor. He’s likely skilled at valuing a company, which will improve his chances of doing profitable deals in the marijuana space.
He has strong experience engineering and sourcing financial transactions, but lacks experience in operations, agriculture, construction and international trade. His 2 years of experience as a corporate executive is much less than the 10+ years for the other CEOs on this list, leading to a three-star rating.
Though his professional career is decades shorter than his peers, Gorenstein has a solid track record working for one of the best law firms in North America and a small private equity firm. With no securities enforcement actions, financial judgements or past business failures, his integrity score is only held back because of his lack of experience.
Gorenstein has minimal experience, which likely explains why his only board seat is for Cronos. This is better for Cronos shareholders, however, as he has more time to dedicate solely to the company.
Aurora Cannabis Inc. (TSE:ACB) – CEO Terry Booth
Terry Booth started his career as an electrician and founded two companies related to construction and permitting in Alberta. He likely has extensive experience navigating the construction permitting environment in Alberta and Canada as a whole.
His gaps in experience apply to international trade, manufacturing, agriculture, logistics and operating in the consumer health or pharmaceutical industries. We give him three stars for his lack of agriculture, finance, manufacturing, and trade experience.
Booth began his career as an electrician. He ended up founding an electrical consulting company which morphed into Superior Safety Codes, an Alberta-based company that handles construction permitting for the government. His companies remain in good standing with the government and are not in financial difficulty as far as we can tell from public information.
We take off one star because of his lack of a public track record and the overly promotional nature of many of his public interactions. Other CEOs have been more measured and thoughtful about their enthusiasm for the marijuana opportunity.
Booth sits on 4 boards including Aurora Cannabis. All of the board seats are with related party companies where Aurora owns an equity stake. We remove another star because his LinkedIn profile says he still is part of the day-to-day management of Superior Safety Codes, a company he founded.
There are still many red flags in this industry
Investors need to be aware that there are no shortage of related party transactions, intercompany dealing and questionable business practices going on in the marijuana industry. A small sample is included below.
Canopy Growth – Why did they Create Canopy Rivers Corp?
We can’t find a compelling reason why Canopy Rivers Corporation, a 31.5% consolidated subsidiary of Canopy Growth, was created at all. All of the services Canopy Rivers provides could be accomplished by Canopy Growth.
- Canopy Growth management has 92% voting control of Canopy Rivers even though they only own 31.5% of shares outstanding. Investors can technically influence management through their voting control at Canopy Growth, but how are they supposed to decide the direction of a subsidiary when they have absolutely no financial disclosure to help them make informed decisions.
- Canopy Growth has invested $25 million of investors’ money into Canopy Rivers, a company that provides no disclosure of financials to investors and a share structure that puts 92% of voting control in the hands of Canopy Growth management.
- If you participated in one of Canopy Growth’s equities raises, management has effectively taken some of your shares with full voting power and moved them into a company where you now have 1/10 of a vote and absolutely no idea what is going on.
- Canopy Rivers bought a greenhouse in New Brunswick and is renting out the property to Canopy Growth. Why didn’t Canopy Growth just buy the property outright? Every dollar that flows through Canopy Rivers is a dollar investors can’t track.
- Canopy Rivers contributed $15 million to the Vert Mirabel JV and received 26% of the company and preferred shares, while Canopy Growth contributed only $2.75 million, but received 41%. We would love more disclosure to understand how this arrangement makes economic sense.
Organigram – They claim to be organic but anticipate buying synthetic CBD
Scientific studies are still being conducted on the efficacy of whole plant vs synthetic CBD, but early indications show that CBD synthesized from the whole plant is much more effective for treating different symptoms and works at different doses than synthetic CBD.
According to recent studies, synthetic THC has been shown to potentially cause liver and kidney issues, which should give any company pause before they jump into supplying customers with more synthetic cannabinoids.
Aurora Cannabis Inc. – Why do top managers still have second jobs?
- Many of the most senior leadership at Aurora Cannabis Inc. (TSE:ACB) are still listed as CEOs and senior leaders at their prior companies. Creating a successful company from scratch is hard enough, especially in a new industry, but investors should at least know the management team is 100% focused on creating value for shareholders.
- Terry Booth, CEO of Aurora Cannabis, is still listed as President of Superior Safety Codes on his LinkedIn page, a construction permit company he founded.
- Cam Battley, Chief marketer for Aurora Cannabis, is still owner of Wind Gage Communications and Health Strategy Group according to his LinkedIn Profile.
- Steve Dobbler, President and Board member of Aurora, is also still President of Superior Safety Codes, the same company where Terry Booth still works.
Aphria Inc. – Management did not disclose they owned shares in Nuuvera before they bought the company.
- Six Aphria (TSE:APH) directors and the CFO owned 0.9% of Nuuvera shares outstanding, but did not need to disclose this fact when the deal was announced.
- The deal was done as a “plan of arrangement” which does not require the share ownership to be disclosed, but this raises another question of if management structured the deal in this way specifically to avoid the disclosure.
- The CEO of Aphria made it clear that the 0.9% was an investment and was done before the company was even thinking about acquiring Nuuvera, but still the optics do not look great.
- More worrisome is the link Andy DeFrancesco, a paid strategic advisor to Aphria, had with the Chairman and largest shareholder of Nuuvera. A week before the deal was announced, DeFrancesco was given a personal loan from an entity owned by the chairman of Nuuvera.
- The amount is not public but the collateral for the loan has a market value of $49 million meaning the loan amount could be substantial. This loan presented a clear conflict of interest related to DeFrancesco’s duty as an advisor to Aphria.