Canadian cannabis producer Cronos Group (CRON) on Wednesday said that it had appointed a new CEO, following similar moves from rivals Aurora Cannabis (ACB) and Canopy Growth (CGC). Cronos Group stock and other marijuana stocks rose.
The change was the latest leadership reorganization in a business trying to look more like the consumer packaged goods industry after steady losses and other difficulties. Mike Gorenstein, who served as Cronos’ CEO since 2016, has been appointed executive chairman.
The new CEO, Kurt Schmidt, has three decades of experience in companies like Kraft, Nestle, Gerber and pet-food maker Blue Buffalo. He will also serve as president of the company. The changes are effective today.
Cronos Group described the changes would propel the “next phase of growth” for the company.
“Over the past year, I’ve led a search for an experienced consumer focused executive who shares the Company’s values and can help take us to the next level,” Gorenstein said in a statement. He later said Schmidt had “demonstrated tremendous success partnering with founders of late stage start-ups to accelerate growth. “
Among other marijuana stocks, Aurora Cannabis on Tuesday said it had appointed a new CEO, after a search that lasted several months. In conjunction with that announcement, Aurora also forecast sales declines and pushed back a profit target. It also forecast big charges as it tries to realign product supplies with demand and value itself in a way that reflects current market conditions.
A month ago, Cronos Group stock slid after the company reported a worse-than-forecast second-quarter loss. Lower pot prices in Canada, and store closures in the U.S. related to the coronavirus pandemic forced millions in impairments and write-downs. The company also racked up costs related to a review of financial results from last year.
Cronos Group Stock, Marijuana Stocks
Cronos Group stock rose 1.6% in the stock market today. The stock has slipped for much of the past two years. Its Composite Rating is a weak 27. Its EPS Rating, a measure of profit growth, is a weaker 13.
David Klein, the former CFO of beer-and-wine distributor Constellation Brands (STZ), became the CEO of Canopy Growth this year. Constellation, a major investor in Canopy, had expressed disappointment in financial results under Canopy’s previous leadership. Irwin Simon, the former CEO of Hain Celestial (HAIN) — best known for products like Celestial Seasonings tea and Terra chips — is the CEO of Aphria.
Aphria’s previous CEO, Vic Neufeld, resigned after short-sellers accused the company of shady dealmaking that enriched insiders. The company, at the time, said the two events were unrelated.
‘Little To Get Excited About’
Under Gorenstein’s leadership, Cronos Group’s sales remained small compared to its publicly-traded rivals. But the company secured a massive investment from cigarette-maker Altria (MO).
It acquired the CBD brand Lord Jones, albeit at a lofty valuation. Cronos, via a partnership with Ginkgo Bioworks, wants to develop cannabinoids more efficiently, with more precise effects. Longer-term, the company planned to leave bigger, cost-intensive parts of production, like growing the pot itself, to others.
But some analysts who follow marijuana stocks remained nonplussed, and hoped for more results nearer-term.
“Still little to get excited about on current operations,” read a headline from a research note last month by Jefferies analyst Owen Bennett.
He said that Cronos’ cash balance, helped by Altria’s investment, propped up its stock value as other marijuana stocks struggle with money in the bank.
“This will likely continue to support the multiple to some degree near term, while liquidity issues persist at peers, but as these fade, we think so will the Cronos cash ‘premium,'” he said.
“In many ways, given the soft operational performance, Cronos can be seen as a SPAC, in our view,” he continued, referring to the publicly-traded blank-check companies that exist to take private companies public via acquisitions. “To that . . . it needs to put this cash to work in value creating assets. To date, however, it has done very little.”
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