(This story was updated at 3:10 p.m. ET with quotes from Curaleaf CEO Matt Darin. The update includes a clarification that the company is cutting payroll by 10%, which amounts to 4% of its workforce.)
Marijuana multistate operator Curaleaf Holdings said Thursday that it will shutter the majority of its operations in three Western U.S. states – California, Colorado and Oregon – and reduce its payroll by 10% in the latest sign of the ongoing difficulties for the cannabis market as a whole.
The payroll reduction – which amounts to a 4% cut in Curaleaf’s workforce – will save the Wakefield, Massachusetts-based company $60 million in 2023, according to a news release.
In reporting third-quarter 2022 results last November, Curaleaf said it employed about 6,000 and operated in 22 states.
Curaleaf’s cutbacks come as a host of other cannabis companies have cut hundreds of jobs in recent months, including Oregon-based Dutchie, California-based WM Technology and Colorado-based Akerna Corp.
All three of the states Curaleaf is exiting have experienced falling wholesale cannabis prices because of excess cultivation capacity that outweighs demand.
In California, cannabis cultivation capacity is down significantly from early 2022, with some growers choosing not to plant or renew their licenses because of low wholesale prices and tough economic conditions.
Colorado also has seen wholesale prices hit bottom in recent months. And Oregon is one of the country’s most notoriously oversupplied cannabis markets.
Curaleaf laid off about 220 employees in November after about 50 workers in California were let go in August in a smaller round of layoffs and a facility in Sacramento, California, closed down.
‘Future success and profitability’
According to the release, Curaleaf’s latest moves were necessary for the “future success and profitability of the business and were made as a result of recent legislative decisions, price compression and lack of enforcement of the illicit cannabis market.”
Southern Oregon has been a case in point as regulators and law enforcement there have attempted to curtail a thriving illicit market.
According to Curaleaf, the three state markets it’s exiting contributed less than $50 million to the company’s revenue in 2022.
In a phone interview with MJBizDaily, CEO Matt Darin said the company will still focus its efforts across the United States, just not in these more mature cannabis markets.
“We’re seeing the growth opportunities and the greatest opportunities in markets that may not be the markets where some of that took place years ago,” he said.
“So as the industry matures we are focused on the markets that are generating strong profits and are very stable markets.”
Darin went on to say that the move is also because access to capital is scarce at the moment.
“We need to focus our resources, allocate our resources on where we’re going to get the return on investment. And it’s not in these markets that we are exiting.”
Oversupply, illicit operators are factors
Responding to criticism that Curaleaf is focusing on states with less competition and limited licensing, Darin said the move is more about operating in markets where there’s not a huge oversupply of product and an unrestrained illicit market.
“That creates an unlevel playing field for the companies that are operating in the regulated market and following the rules,” he added. “Those are tough markets as a regulated business and as a public company.”
Darin added that while the failure of the SAFE Banking Act was a factor in the company’s latest cutbacks, a key determinant was the overall climate of the cannabis industry as a whole.
“It’s no one thing,” he added. “But it is certainly an element.”
It is yet to be determined if Curaleaf will continue to operate its retail stores in Oregon or Colorado, but the company will not be committing additional capital and resources to them, Darin said.
The CEO added that it’s still up in the air whether Curaleaf will continue to pursue a possible uplisting from the smaller Canadian Securities Exchange to gain access to institutional investors.
More liquidity is also up in the air, he added.
“There’s discussions but still work to be done in terms of structure and timing and some of the details,” Darin said.
“But we’re certainly always looking at available opportunities to access the capital markets.”
Curaleaf expects these market closures will position the company for cash-flow generation in excess of $125 million this year.
“We believe these states will represent opportunities in the future, but the current price compression caused by a lack of meaningful enforcement of the illicit market prevent us from generating an acceptable return on our investments,” Darin said in the release.
Curaleaf stock on Thursday was down 1.39% on the over-the-counter markets (CURLF) and fell 1.96% on the Canadian Securities Exchange (CURA).
Bart Schaneman can be reached at firstname.lastname@example.org.