Is this a sign that cannabis stocks are in trouble?

When the CEO of a company leaves, investors often try to real Reasons for the departure to determine if there are any problems with the company. Usually, a surprise departure is not received as good news in the markets. Although in Crown growth'S (NASDAQ: CGC) However, since the company announced the resignation of its CEO, there has not been a sell-off – at least not yet.

What could a CEO change mean for the company?? Would this be a better buying opportunity for the cannabis stock, or would Is this a warning signal for investors?

Canopy Growth announces succession plan

On August 16, Canopy Growth issued a press release announcing the resignation of its CEO, David Klein. He will continue to lead the company through the end of the fiscal year in March, but a search is already underway for a successor for the coming year.

Klein has been with Canopy Growth since January 2020. He took over after the company fired Bruce Linton and concerns grew about the cannabis producer's mounting losses. It was particularly problematic for Constellation markswhich invested billions in the company and whose losses weighed on its finances. Klein was previously part of Constellation's business. However, Constellation recently distanced itself from Canopy Growth's business and now only holds convertible shares in the cannabis company.

While it is questionable whether this move was worth it for Canopy Growth – the business remains unprofitable and cash burn remains a problem – the company's board of directors remains “confident” about the direction the company is heading.

Could this be a good move for the company?

A major problem I see with Canopy Growth is that under Linton and Klein, the company is primarily focused on growth opportunities in the US cannabis market. Although Klein has cut costs and scaled down Canopy Growth's operations, he also helped create Canopy USA, a special purpose vehicle that holds all of the cannabis producer's investments in US cannabis companies. Canopy Growth can make acquisitions of Land ownership and other multistate operators and report their results in their financial reports without conflicting with the Nasdaq due to the nationwide cannabis ban.

Under a new CEO, there could be a further move away from the US market and possibly other opportunities. Rival Tilray BrandsFor example, Canopy Growth has diversified its business into alcohol to expand and improve its margins. If Canopy Growth were to follow suit and focus on growth opportunities in other industries, it could solve two big problems for the company: achieving sustainable revenue growth and strengthening its finances.

The story continues

However, until there is a new CEO or new plans are implemented, there is currently no reason to believe the company will take a completely different direction. And if the board is indeed happy with the current trajectory, there may not be overwhelming pressure to choose a completely different CEO than Canopy Growth.

Should you buy Canopy Growth shares today?

Sometimes there are big swings in a stock's price when there's news of a CEO's departure, because it's often seen as a sign of trouble ahead. But in Canopy Growth's case, the cannabis stock has remained fairly stable since investors learned of Klein's resignation. Canopy Growth's stock is up a pretty decent 41% over the past 12 months. But over a five-year period, investors are still down a massive 98%; Klein's takeover hasn't led to any better prospects for the company.

Canopy Growth remains a risky company regardless of its successor; this latest news does not necessarily make things worse.

When Klein took over, I thought Canopy Growth would seriously cut costs and not be so fixated on expanding into the US. Although costs are lower, I still think there is too much focus on a US market that is inaccessible to Canopy Growth. A new CEO could offer new hope and cause for optimism, but no matter who it is, investors would be better off waiting to see what strategy the company pursues before buying shares of the marijuana producer.

Although the stock is not necessarily a worse Given this development, it is also hard to argue that a CEO change will make it a better investment. Holding back probably remains the best option for investors at the moment.

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David Jagielski does not own any stocks mentioned. The Motley Fool owns and recommends Constellation Brands. The Motley Fool recommends Nasdaq and Tilray Brands. The Motley Fool has a disclosure policy.

Canopy Growth CEO Exits: Is This a Sign the Cannabis Stock is in Trouble? was originally published by The Motley Fool