Given the way this sector moves executives around, I thought it’d be a good idea to add the year to the title. There’s probably going to be many months of continued changes ahead.
And our October 2020 ‘Change at the Top’ brings up one of the biggest names in Canadian legal cannabis: Chuck Rifici.
He’d already stepped down from the Big Chair in 2019, and Auxly ($XLY) made some changes back in May of this year as well. All in all, it’s not hard to see Chuck’s departure as being planned for several quarters.
Auxly’s latest news release tells of his departure (effective immediately), and moves some executive furniture around. They appointed a new Chair, President, and added an independent director. And yes, they all pack notable CPG experience (at the least: any experience in CPG they might have has been made notable. Gen-X = born cynical).
The announcement also tells of a restructuring, with Kolab assets being ‘fully focused’ on making pre-rolls, a SKU rationalization, layoffs, eventual full operationalization of Dosecann, and Sunens feeding flower for pre-rolls (that’s gonna be ALOT of pre-rolls).
We also find out $XLY’s initial product lineup didn’t last long. Like many other companies, consumer preferences around cannabis are just being discovered by formal commerce. Many have missed the consumer target, and are paying for it now in retooling cultivars and product suites.
<This situation reminds me of a quote, attributed to Prussian Field Marshall Helmuth Karl Bernhard von Moltke: “No operational plan of battle remains intact after first contact with the enemy”. I love how accurate that phrase is. So many outfits are finding challenges designing products while guessing at consumer preferences – my takeaway is that producers will need to be nimble as hell around product roadmaps and SKU design and production planning. As in it’ll be continual, and a mistake will hammer a quarter’s profitability. And mistakes will come with a healthy gap of months between when the company finds it out, and when the investor finds out. This has implications for anyone trading out there, and this is one of the reasons why GoBlue and I are so interested in outfits like Headset & Cannstandard – which produce interpolation of current sales data, and get out in front of financial statements and State Monopoly reporting. This data formalization also reflects a natural maturation of the sector. I think it’s a beautiful thing frankly…….although that’s not how most VP’s of Strategy or Business Development or Operations would likely characterize it>.
That Dosecann is still not fully operational means some more cash burn likely through 2 quarters. $XLY claims to be levering Imperial’s talents in making pre-rolls at Kolab (first direct statement I’ve seen out of $XLY of them utilizing Imperial operationally), aggressively tackling SG&A, workforce reductions, etc. Definitely a full on re-org/restructure, and realistically, it’s due.
Given all of that, I haven’t had a whiff of rushed decision making or panic at $XLY, at any point. Despite their financial condition, all I’ve seen is that things are done (largely) orderly, their dealmaking has been even handed and mutually beneficial in design, and succession planned well in advance.
As to Chuck, I suspect he’ll land on his feet. I’ve had the opportunity to meet him a couple of times, and he’s a heavyweight. He’s been very gracious to myself and TheCannalysts, and the keynote he delivered at WeCann® West reflects a strategic mindset. One of my fondest memories from the event is of Chuck spending hours after the conference among panellists and sponsors and guests. He was professional to the core, and ‘worked’ the entire room……..without ‘working’ it at all.
Back in early 2018, we alluded to how companies will have different leadership needs over time, and it’s probably the easiest (laziest?) to summarize Chuck’s departure as simply that. He built $XLY, picked the people to transition it to, and now rides off slowly into a sunset.
Another perspective might see the current financial condition of $XLY as the reason for his departure: that perhaps $XLY should have done this deed long ago.
Yeah. Reading that sentence out loud, I think it’s a bum take. Simply typing it hurt. It is probably fair to say that there’s catalysts or stresses around finances internally – which are a part of the whole picture. Chuck’s had such a large part in building and staffing the outfit – it’s probably also fair to describe $XLY as the ‘House that Chuck Built’. The current executive, the contracts, the investments……..the deal with Sunens….it was all Chuck. From here on, it’s all Hugo and Genevieve.
Ultimately, this is in large contrast with the departures of the Terry Booths and Bruce Lintons from legal cannabis. To see one of the earliest of movers/influencers leave an outfit without security escorting them out……is a good thing for a company, and the sector.
To Chuck: Thank you sincerely for your graciousness and generosity in dealing with TheCannalysts, and particularly with myself. It’s been a pleasure to have met you, and we look forward to seeing you again in the future.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $XLY,