Anyone paying attention to cannabis business headlines has noticed what on its face seems a disturbing trend: At least half a dozen large companies recently announced layoffs, perhaps suggesting there’s financial trouble surrounding the marijuana industry.
But those headlines don’t reveal the full story, several industry watchers told Marijuana Business Daily.
Rather, recent layoffs are a signal that cannabis is an ever-emerging modern industry, with all the trappings and pitfalls of mainstream businesses.
They added that more are likely to occur, even as other companies staff up in coming months.
“The reality of the cannabis industry right now is that it’s not a gold mine,” California attorney Joe Rogoway said.
“Businesses have to make money. That’s the bottom line. And we have a whole lot of businesses in the cannabis industry that have not been making money.”
Instances of recent staffing contractions include:
- Canadian cannabis producer Hexo laid off 200 employees late last month.
- Another Canadian marijuana producer, CannTrust, let 180 workers go in September.
- California-based marijuana tech company Weedmaps laid off more than 100 employees in October.
- Pax Labs, a California vape pen manufacturer, gave out pink slips to 65 workers in October.
- Another California ancillary company, delivery tech firm Eaze, also laid off 36 employees in October.
- Oregon cultivation operation Golden Leaf Holdings in April cut its workforce by approximately 20% – about 33 employees.
That adds up to more than 600 cannabis employees out of work, amid what until recently was often viewed as a burgeoning global industry with nothing but profits for all entrants.
Layoffs started in 2018
Cannabis businesses began to let more employees go in earnest over a year ago, several sources noted.
But not many industry observers picked up on it immediately because the majority of announcements involved smaller companies that either went out of business with zero fanfare or had to scale back workforces in much fewer numbers than the half dozen more well-known businesses mentioned above.
Kara Bradford, co-founder of Viridian Staffing in Seattle that helps MJ businesses find workers, believes the real number of laid-off workers over the past 12 months in the cannabis space is much more likely in the thousands, not the hundreds – and other experts agree with her.
The layoffs trend has shifted from state to state, based on how many people Bradford has had come to her looking for work – from Washington state to Oregon to California over the past few years – but there isn’t a common thread that was easy to pick out as far as why companies were cutting costs.
“There are so many different things that keep causing these companies to struggle,” Bradford said.
“I think maturation has quite a bit to do with it. We’ve been in a bubble … and I think maybe that bubble has popped and we’re leveling out.”
Right now, Bradford said, California is in the hot seat for employee rollbacks, and she and other sources said they expect to see more such headlines in coming months.
No warning bells
Several experts, however, said the trend of layoffs isn’t cause for concern but simply a reminder that careful financial calculation remains necessary.
“The reality is, a lot of people are hiring based on what they think will occur. So you can’t really blame companies for not having extremely dialed-in hiring practices on where they need people and how,” said Mitch Baruchowitz, managing partner at Merida Capital Partners in New York.
“This is still an industry being built without a real rulebook.”
And as an investor, Baruchowitz said, he’d prefer that companies make tough choices – such as having to cut staff strategically – rather than ignoring problematic financials until their coffers run dry.
“When a business goes through a significant shock, I would rather they worry less about how it looks to the market and more about what they do to survive,” Baruchowitz said.
“If you’re making decisions that are smart business decisions, the optics will eventually come around to be perfectly fine.”
He also emphasized there isn’t a solid common thread among the six headline-making instances – such as Hexo, Weedmaps and Golden Leaf Holdings – other than they all perhaps are having to dial back their expectations about how their respective markets are performing.
“The way to look at it is, companies are now trying to grow responsibly rather than at all costs. And that’s a natural response to capital efficiency declining,” Baruchowitz said.
“Long or intermediate or even short term, that can be a very healthy thing. It’s a forest fire that clears the decks for the next round of growth.”
More layoffs likely, but so are acquisition opportunities
“We’re at the beginning of a cycle right now, not at the end of it,” Rogoway, the California attorney, predicted. “There’s going to be ongoing news of layoffs, of companies that have to shutter facilities, of distressed sales of companies that go into some type of receivership.
“We’re going to see a new iteration of … businesses that were able to get a bunch of capital, buy a bunch of other businesses and spread themselves out way too thin, (that) are going to get burned by that.”
Baruchowitz, Bradford and others also said they don’t expect layoff headlines to cease suddenly – and if anything, they’re expecting more.
But that doesn’t mean plenty of companies won’t be hiring, such as Illinois-based Cresco Labs, which recently announced it’s beefing up its staff by another 300 in preparation for the start of rec MJ sales in 2020.
The current business cycle in and of itself is likely to provide more opportunities overall, Rogoway said.
“There will be a lot of businesses that went through the acquisition and entitlement processes for their facilities, and they’ve burned through all their cash, and they have to get rid of that facility, and there are going to be folks waiting to take that on,” he noted.
John Schroyer can be reached at [email protected]