• Cannabis industry faces inflationary pressures and threat of recession
  • Cannabis industry faces inflationary pressures and threat of recession

L’industrie du cannabis face aux pressions inflationnistes et la menace d’une récessionÉconomie

Publié le 7 septembre 2022 par AQIC

While business around the world shuttered as COVID-19 spread, the marijuana industry was deemed “essential” in nearly 30 states and stood to gain from the pandemic.

But more than two years later, amid rising inflation and fears of a recession, North American cannabis companies are cutting hundreds of jobs, closing retail outlets and cultivation facilities or shuttering altogether.

The marijuana industry mirrors mainstream companies that saw similar demand and now are struggling to right-size their businesses.

Sales of Peloton bikes spiked when gyms closed and people sought fitness alternatives; but the New York-based company has axed more than 4,000 jobs so far this year.

The pandemic-era e-commerce boom that boosted Shopify’s business also appears to have cooled, and the Canadian company, which makes the technology that powers online stores, has laid off about 1,000 workers.

The cannabis industry layoffs and retrenchment have affected plant-touching companies large and small as well as tech businesses such as Akerna of Colorado, Dutchie of Oregon and delivery operator Eaze of California.

The factors behind the cannabis retrenchment are numerous. They include falling wholesale marijuana prices, cash-strapped consumers and structural changes affecting the industry, experts said.

Among the more notable plant-touching companies that have been caught up in the fallout in recent months:

  • California-based cannabis advertising giant Weedmaps cut 10% of its roughly 600-member workforce, citing market contractions in California, Colorado and Oklahoma.
  • Arizona medical marijuana grower Nature AZ Medicine laid off around 100 employees as medical sales drop and recreational sales spike.
  • Michigan-based Lume Cannabis closed four of its roughly 30 stores in the state but did say it plans to open three additional stores in more populated areas. The realignment, disclosed in July, comes at a time when marijuana prices in Michigan have tumbled because of market saturation.

Corporate turnarounds

In addition to inflation and economic woes, cannabis businesses are grappling with staffing issues.

For one, many public marijuana companies are undergoing turnarounds, which often translate into the shedding of employees.

“The guys who come in to handle turnarounds don’t understand the market and cannabis,” said Avis Bulbulyan, CEO of Siva Enterprises, a California-based marijuana consulting firm.

Edmonton, Alberta-based Aurora Cannabis said in June that it was cutting 12% of its workforce as part of a corporate restructuring.

The company expects the move will save up to 90 million Canadian dollars ($69 million) and put it on the path to profitability. The company’s goal is to turn its first profit next year.

Another Canadian public company, Canopy Growth Corp., disclosed in August it cut 245 employees – or about 8% of its workforce – as part of sweeping changes across the company designed to help stem recent losses and nudge the struggling producer to profitability.

Canopy said it expected the cuts and adjustments to generate up to CA$150 million in savings in 12-18 months.

Canopy also closed its cultivation facilities on 23 acres in Niagara-on-the-Lake, Ontario, last year.

Echoes of the dairy industry

“The legal cannabis business is volatile,” said Daniel Sumner, professor of agricultural and resource economics at the University of California, Davis and co-author of “Can Legal Weed Win? The Blunt Realities of Cannabis Economics.”

“It’s a new industry,” he said, “and companies are coming and going and being acquired in all parts of the industry – not just growing and processing and selling.”

Consolidation in the marijuana industry is similar to what happened to Wisconsin’s dairy industry, which lost 10% of its farms in 2019 and 44% over the past 10 years.

“Production went way up, but the number of farms went way down,” Sumner said. “It’s consolidation. A lot of that consolidation means if you’re a manager, you call it labor-saving efficiencies.

“But if you’re a worker, you lost your job.”

Despite the cost of other products rising because of inflation, the price of marijuana has declined, another factor impacting companies’ ability to retain employees.

In Colorado, for example, the wholesale price per pound of marijuana was $709 as of July 1 – an all-time low – and down 46% from $1,309 a year ago and nearly 60% from $1,721 in January 2021, according to Colorado Department of Revenue data.

“Farm-level cannabis costs coming down is the reality of this business,” Sumner said. “It’s partly improved management; some is technology.”

But, Sumner said, like other agricultural crops, price declines in the marijuana industry should be expected.

“Adjusting for inflation, we now spend 10% of our income on food – not 4% like we did two generations ago – and there’s no reason to think cannabis won’t follow that trajectory.”

 Structural changes

And just as practices shifted from a customer-focused approach at grocery and liquor stores where someone would tell you about the products, practices at cannabis retail stores also are likely to see changes that result in the need for fewer employees.

“Everybody used to buy their beef or their fish from the person who really knew beef and fish – you walked in and talked to the baker, the butcher or the fish monger about what you want,” Sumner said.

“That’s the way it’s handled in cannabis now. But cannabis is moving away from it. It will be cheaper and more available, but there won’t be the services and employment.”

Like other industries, venture capital funding also has become scarce for cannabis businesses seeking investors to fuel their growth.

Without financing, it’s tough to keep as many employees on staff, said Karson Humiston, founder and CEO of Denver-based cannabis recruiting network Vangst.

“People are really tightening the belt and working to preserve cash because funding is hard to come by,” Humiston said.

“When companies have a harder time raising capital, they need to make sure they have enough cash to weather the storm. The first thing to go is expensive headcount.”

The majority of job cuts are at the senior level – not hourly employees who work in grows or retail shops, Humiston said.

And with many multistate operators using more gig employees than in the past, Vangst is having its busiest summer ever.

“People are still purchasing and consuming cannabis, so these hourly workers are essential,” she said.

“Cannabis still needs to be grown, packaged and delivered to customers. Those are hourly roles.”