Once cannabis was legalized, the industry exploded. Everyone had been busy making plans while they waited for legalization and then took off running once it was legal. So, after all of the initial hiring and hype, why are there suddenly so many cannabis industry layoffs? Just like the road to legalization, it is a tangled web to unravel when it comes to the layoffs; but we have some of the answers.
How Many People Have Been Laid Off?
Over the past several months, big cannabis companies across North America have been making headlines for layoffs:
- California company MedMen laid off 190 employees to offset a $187 million deficit
- Eaze’s CEO stepped down at the same time 20% of its employees were let go
- Canadian producer, CannTrust, laid off 180 employees
- Hexo, another Canadian producer, laid off 200 employees
- Weedmaps laid off over 100 employees
While these numbers seem sudden and huge, this trend actually started in 2018. It’s just that not many people noticed because it began with much smaller companies going out of business or laying off their smaller workforces. It’s only now that the more well-known names are being affected that people are taking note.
Has the Cannabis Industry Bubble Popped?
While some are whispering that the cannabis industry layoffs are a sign that the bubble has popped, it isn’t that simple. There are many contributing factors to the story, including that there have been some bad business decisions made along the way.
States like California are being hit especially hard. Cannabis might be legal within the state, but it is still federally illegal. This has made federally-owned banks hesitant to work within the cannabis industry and has further allowed cities to choose which law they want to follow. This means a lot fewer retail options are available than the producers had counted on.
In fact, all of the companies that are laying off their employees have cited the slow development of the retail market as a major cause. This is due to cities choosing whether or not to allow cannabis within their limits, as well as slow business approvals and restrictions on locations. To put it simply, there is a gaping lack of retail space.
There is also the illicit market to consider. Before legalization, cannabis-culture was thriving, especially in states like California. For those taking the legal route, there is still competition from those unwilling (or who can’t afford) to stay on the right side of the law. And this is true for both producers and customers. Change can be hard to swallow (or smoke).
Cannabis is a new industry, and everyone is “learning as they go”. Unfortunately, that means a steep learning curve, and sometimes bad business choices. How do you know how to plan when there is no precedent to follow? In Canada, the cannabis industry layoffs followed serious revenue projection misses, and big-player CannTrust is dealing with the fallout of their illegal grow-rooms. Overall, though, companies hired based on what they thought would happen… and things are moving slower than we all would like.
Understandably, all of the cannabis industry layoffs have spooked investors, sending stocks plummeting. This is more likely a knee-jerk reaction to current headlines, and as the companies adjust and rebound, the investors will be back. While laying off employees doesn’t feel good to anyone, it can be the one move that turns things around. In fact, investors like to see a company acknowledge its mistakes, learn from them, and come back stronger.
What Does the Future Hold?
As we press through the growing pains of inflated expectations, government red tape, and competition in a brand-new industry, there will probably be more layoffs ahead. That said, not all companies are struggling, and tomorrow is another day.
Investors will look at the layoffs as a smart business decision and align with the companies that handled the market challenges well. There will be acquisition opportunities for smart players, as those who have spread themselves to thin fail. There is also growth in the edibles, oils, and topicals markets to consider. Lastly, though it is slower than we had anticipated, legalization and acceptance are only spreading.
The cannabis industry layoffs are just business; and business is business, no matter what industry you are in. Especially when the rules are being made up as you go. Learn more about this and other cannabis industry topics by joining us at a CannaCon in your area. Register now for CannaCon Northwest.