How to steer your cannabis business through a recession

Welcome to the modern-day marijuana industry’s first recession. Will the legal industry prove resilient, as alcohol has? Perhaps. But this downturn is unlike any other.

The National Bureau of Economic Research pegged the start of the recession in February, triggered by the lockdowns and massive economic fallout caused by the coronavirus pandemic. Since then, the national economy has lost more than 40 million jobs. The unemployment rate hit 14.7% in April and remains high, even after May’s unexpected decline to 13.3%. Unemployment numbers have not been this terrible since the Great Depression.

In addition to the unemployment rate, other indicators point to widespread economic weakness. The Washington Post noted in June that nearly 50% of all commercial rents weren’t being paid. Also, the additional $600 a week in unemployment benefits being paid to millions of Americans is set to end in July, potentially triggering new rounds of defaults on credit cards, mortgages and other loans. Any resulting plunge in consumer demand could spawn other delayed consequences and will be felt even further out—possibly for years.

To be sure, far from everyone is forecasting doom and gloom. Economist Mark Zandi of Moody’s Analytics, pointing to a drop in May unemployment numbers, told CNBC the “COVID-19 recession is over,” although he expects a slow recovery until a coronavirus vaccine or therapy is widely adopted.

The cannabis industry, for its part, has been living a tale of two recessions. Some companies are cutting jobs, selling assets and scrapping expansion plans to fix their balance sheets. Others are hiring and making acquisitions.

Some executives predict convulsive change when the cannabis industry emerges from this recession. “I think you’ll start to see the emergence of five to seven large, well-capitalized players. I think there’s going to be a fair amount of blood on the streets,” said Erich Mauff, co-founder and president of Florida-based multistate operator Jushi Holdings.

Others see the current environment as par for the course for the cannabis industry, in which tumult is the norm. “We have catastrophic change looming around the corner almost every day—whether it’s a new labeling requirement or some prohibitive, draconian law that’s imposed on us,” said Ted Whitney, chief operating officer of Nug, a vertically integrated cannabis company in California.

“The recession is just another one of those challenges.” (Nug suffered additional setbacks in June after it was targeted repeatedly by robbers amid nationwide protests against police violence.)

Between the contradictions of doom and boom, it’s easy to feel lost. In this package, Marijuana Business Magazine has created a “recession road map” to help cannabis executives steer their companies through the chaos.

Do you hunker down and cut costs or take advantage of the opportunities created by the upheaval? The answer largely depends on your company’s niche, balance sheet and location—along with your ability to recognize excess and make cuts.

To answer these and other questions, we’ve taken deep dives with cannabis executives into recession strategies and unearthed scores of tips, insights and advice.

How long these uncertain times will last is, well, uncertain. What we can say is that the advice in the following pages won’t expire when the present recession ends but instead will remain relevant through this downturn and beyond.

 

Getting in Fighting Shape

Raising Money in a Recession

Branding in Hard Times

Keeping A Lid On Labor Costs

Bypassing Bankruptcy

Lessons from Recessions Past

Broke Enough for Bankruptcy?

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