WHEN: Today, Wednesday, July 3, 2019
WHERE: CNBC's "Squawk Box"
The following is the unofficial transcript of a CNBC interview with Canopy Growth Co-Founder Bruce Linton on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Wednesday, July 3rd – after the announcement that he would be stepping down as Co-CEO and board member. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/07/03/canopy-growths-co-ceo-speaks-out-on-being-terminated-from-the-company.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: But we want to get to the breaking news in just -- in the last few minutes, Canopy Growth's Co-CEO, Bruce Linton, stepping down from his post. The shares dropping. Let's show you what's going on with those shares. Literally, as we speak, they have fallen off as much as 7% before that, come back a little bit right now. But joining us on the "Squawk" news line, we have been speculating about what's happened here. Bruce Linton is with us. Bruce, give us the back story. Why are you stepping down? And, we should say, not only from the CEO role, but you're also stepping down from the board.
BRUCE LINTON: Well, I think stepping down might not be the right phrase, right? What -- on November 1, we closed $5 billion, 4 U.S. billion for 17% of the company and a condition of that closing was the board had to be reconfigured. About eight months and two days later, I think the board has decided they wanted a different chair and a different Co-CEO. So, I'm out effective immediately and there's a search to replace the transitioning Co-CEO.
KEVIN O'LEARY: Bruce, just to be clear, have you been terminated or you stepped down on your own?
BRUCE LINTON: I was terminated.
KEVIN O'LEARY: Okay.
ANDREW ROSS SORKIN: So, you were fired.
BRUCE LINTON: Yes. A lot of words for it. In fact, what -- is this Kevin?
KEVIN O'LEARY: Yes. It's Kevin.
ANTHONY SCARAMUCCI: Hey, Bruce. There's life after firing, trust me. You're going to be just fine, okay.
KEVIN O'LEARY: Bruce, I want to go back. You are such a hammer--
BRUCE LINTON: Kevin -- Kevin was one of my first interviews in the sector. And because it was Kevin, he was expecting me to look like a hippie. I wore a three-piece suit. And you sat there looking at me going, I don't know what in guy is about, I'm just going to try to wait until he gets off this segment. But, how are you, Kevin?
KEVIN O'LEARY: Very good. And I want to ask you a question, Bruce. You are a hammer in the Canadian market for raising capital. You are the industry and were for years. Where are you going? What are you going to do?
BRUCE LINTON: Well, I'm -- I have already gone to Costco and filled one car up with gas this morning. I have a long list of important stuff like that to do. And I would hope by the end of the day I've figured out what's up next. And it won't be cannabis in Canada. But there's a pretty big world out there.
ANDREW ROSS SORKIN: But Bruce, take us behind the scenes. Because, clearly, and this has been a surprise to the market, to investors, to analysts. What happened here? Give us whatever – I imagine your vision of the future of this company was and how that must have differed with the board?
BRUCE LINTON: So, I think the company is in great shape because we did a couple of things. One is, well, we hired really great people. We loaded them up with long-term employee stock option programs. So, there's a bunch of great people that are going to continue to work through the transition. It will be a bit odd because nobody, including me, was necessarily expecting it. But I do think that we have this IP-driven global rolling force that is going to be the dominant player. And, from my perspective, I'm pretty upbeat today. Not because of being terminated, but because in six years to create something that's got 4,000 people in 16 countries and a market-cap that's touched 20 billion— that's been a productive period of time. And so, I think it's actually going to be the dominant company and I'm wearing my green shirt today because I still feel that.
MELISSA LEE: Bruce, you're credited with bringing in the Constellation investment in the first place and here Constellation is effectively handing you your walking papers. Do you really agree with the direction that Constellation wants to take this company in, considering they are getting rid of you?
BRUCE LINTON: Yeah. I think the direction they want to take it will be determined. I'm not – I don't know how material it will change instantly or anything. You know, when we looked at this, both Mark and I assessed the circumstance and it was our view in August when we were announcing that it was really important for the company we take the $5 billion because otherwise Constellation, who is a very powerful company, may have decided they would put other oars in the water. And this made them 100% fully structurally integrated with no other options but Canopy. When you bring in a big check and change the board, unless you're like living in la la land, there's always some perceived risk. But it would have been worse for the company we didn't do that.
WILFRED FROST: But, Bruce, do you regret how this has all shaken out? Would you have rather you'd gone with a different partner perhaps?
BRUCE LINTON: I think there was no other partner. Like a big check from a lot of these other guys was $50 million, $100 million. The first check from Constellation was effectively $500 million, right? It was a 245 million followed by 245. These are serious players. Like those guys make decisions, the go for bat. And the way they can make a big decision on putting big money in is the same way that they can make a big decision on time frame and the way to go with this with leadership.
KEVIN O'LEARY: Bruce, you were recently one of the executives in this industry that were sensitive to the institution investors demand to buy – its medicinal versus recreational. I can't invest in any of this because it's a schedule one narcotic. You had a plan. You talked about this recently that you were looking at bifurcating or going in the direction where I could invest in medicinal. Is that one of the reasons you had some friction here?
BRUCE LINTON: No. That hasn't been specific. So, what I was talking about there, I think part of the complication for analysts covering our sector and looking at Canopy is: do you cover it with the AG, pharma, CPG or industrial? So, I think the right thing for the company over time is it's really sort of the four discreet entities. And we had begun to work in the production assets and putting them into a sort of REIT or a lease lend back so we could free up almost $2 billion in capitals to put back to the pharma research and products over time. You know, what kind of sector has farmers and physicians? Right? This is a pretty – pretty complicated model because of regulatory requirement.
ANDREW ROSS SORKIN: Here's the part that I don't understand. There's a lot of people, investors in particular, who have bought into you personally. Not just the company but you personally. This seems like a decision that's been made overnight, but it sounds from what you're saying this was in the making almost from the beginning. When did you know that this was in the offing and what do you think really led to it?
BRUCE LINTON: Well, I didn't know for sure, but when sort of an unexpected board meeting gets called on a Friday afternoon, or the Tuesday, one does have to wonder if I'm the Chairman and I'm not calling the meeting I suspect it's about the chairman.
ANDREW ROSS SORKIN: So, that just happened last week? Is that what you're saying?
BRUCE LINTON: It happened Friday. So, you know— this is a big boy's game. Right? We're talking about billions of dollars in enterprise value. And canopy is an awesome company. The thing that we put together, it's not Bruce just going on TV and explaining how the world should work. It's the people back at the shop doing all the work. And so, like I would say to the investors, I think the company is built really solid. And it will go through this transition. And it is a fun day for Bruce. Well, no, but like tomorrow, who knows? Maybe I'm working while you guys are off on the holiday.
ANDREW ROSS SORKIN: Did the board do anything nice on your way out meaning, did they give you anything?
BRUCE LINTON: You always get nice gratuity—
ANDREW ROSS SORKIN: What were you saying?
BRUCE LINTON: You always get a nice gratuity when you're asked to leave. But, you know, in the context of everything that's been created, it's not a meaningful thing. It's just a pleasant thing.
ANDREW ROSS SORKIN: What was the consolation prize?
BRUCE LINTON: Oh, you always get—you know, if you're coming to work for a couple of years we would have paid you this. But, these sorts of things— I think it's more about for me – I have had so many people firing me texts and stuff saying, you know, 'You guys have created a sector, it's not just a company.' And I think that the work with the media that you guys have helped facilitate has allowed people who wouldn't have had a conversation about this as an investment thesis to actually become investors over the last year.
MELISSA LEE: What do you think the last straw was in the view of the board, Bruce? Was it the last quarterly report that you posted which was it disappointing?
BRUCE LINTON: I don't really know. I think they expressed some disappointment there. But at the end of the day, sometimes entrepreneurs are entrepreneurs because they're not super employable. And I would say I probably don't have a resume because I like creating businesses and driving them. You don't always mesh well with everybody in the play pen. So, I think probably what they're doing will probably be a better decision, it's just not a great day for Bruce.
WILFRED FROST: Bruce—Bruce, do you have all your stock, are you planning on selling any of the stock?
BRUCE LINTON: I think I have a -- I have a pretty good chunk. So, no, I'm not planning to sell more than a blackout out now. So, I think I'm sitting on a few million shares and I would expect -- I think as the U.S. opens and the deal with Acreage becomes activated, my stock is worth a multiple then of what it's worth now.
ANTHONY SCARAMUCCI: Bruce, it's Anthony Scaramucci. I'm just curious, is this the first time you have been fired?
BRUCE LINTON: Oh, god no. This is not the first company I have created. So, there was one which was a -- bought by Microsoft for the IP. That one was looking for funding after 9/11 when the VCs put in their -- whatever you want to call it, ratchet round. You can't agree with it so you go. Yeah, that was the -- that was the main one. But no, I find entrepreneurs at a certain point in time, it's not about competency of doing all the tasks, it's about alignment with how to govern and doing the tasks. So, yeah—and hey, listen, I look forward to getting back to your restaurant in the Square and actually getting to say hi to you.
ANTHONY SCARAMUCCI: I appreciate that, Bruce.
KEVIN O'LEARY: Bruce—one last question here. Diversification is the only free lunch in investing. Now you're not constrained. Is there another cannabis company if you could take some of those 18 million shares and invest it in that one just to hedge your bets— which one would that be?
BRUCE LINTON: Yeah, that's a good question. So, like, when I'm on the road marketing, I would tell everybody 'You should buy at least half of your portfolio with Canopy and if you're looking for a second one what I like in the Canadian market because of how they run themselves is OrganiGram. I found them to be pretty solid. And if you're trying to diversify diversify, I like Rivers. Canopy Rivers is structure so that you actually have about 14 investments in one portfolio, but it's done by people who know the sector. So, those would be my diversified portfolio choice and my individual.
ANDREW ROSS SORKIN: Hey, Bruce, one question, actually coming in from a viewer asking whether this was related at all, you know, about a week ago the company announced that it had improperly used – it basically, had to issue a correction on your adjusted EBITDA. Did that have anything to do with this?
BRUCE LINTON: Not to my knowledge. I think this is just more of a transition of philosophy in management and I don't think it's much more than that. And I think it will actually – you know, when they search, this will probably be the most applied to job in North America. So, I don't think there will be a particular challenge finding somebody with more capabilities than I have, because –
ANDREW ROSS SORKIN: Is there somebody you'd like to take your job?
BRUCE LINTON: Yeah, I have to -- it's unpopular, but I think Elon should take something else on, because he's a pretty creative guy.
MELISSA LEE: Are you saying that Mark Zekulin is not going to -- I mean, the board announced that Mark Zekulin is now the CEO. Is that not a permanent move?
BRUCE LINTON: No. If you look at the press release, they're doing a search that will look for internal/external candidates.
WILFRED FROST: Bruce, how confident are you at the moment that other countries, maybe in Europe, will follow suit that we have seen in Canada or the U.S. Is that something that you think is coming quicker/slower than you'd originally expected?
BRUCE LINTON: Yeah. I think it's coming quicker. It ebbs and flows a little bit based on regional pressure, just like we see with the New York and New Jersey sort of thing for the U.S., but the public policy experience is in the eye— most of them now are looking at how do they grab ahold of the research opportunity and the IP opportunity. So, I think it's driving a different part of the government then it may have when it was driven by the courts.
ANDREW ROSS SORKIN: Okay. Bruce Linton, we want to thank you for calling into the show this morning, your candor and for being so open with us, right after what is I imagine is a difficult, difficult day.
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