Wave of Layoffs Strikes Legal Cannabis

Legal cannabis was supposed to mean jobs and tax revenue as an enormous illicit market slowly gave way to regulated cultivation and sales.

That may yet happen, but so far, both sales and the accompanying tax haul have been lower than promised. And with companies missing sales and revenue goals, that means layoffs for the worker.

Multiple major brands in cannabis have announced cutting more than 10% of their workforces this fall. Joining software delivery platform Eaze and ad-platform Weedmaps, both of whom announced workforce cuts around  20% last month, are California brands Flow Kana, Cannacraft, and would-be national power player MedMen.

On Nov. 14, Flow Kana CEO Michael Steinmetz told the Sacramento Bee that the company might cut up to 20% of its workforce. The next day, Culver City, California-based MedMen, confronting a $187 million deficit, said it would lay off 190 workers in order to save $10 million a year. (Only $177 million to go!)

That continued what’s been an industry-wide trend or what some are calling “an epidemic.”

“It almost feels like an epidemic…” Layoffs in cannabis companies up and down the state reflect challenges in #California’s fledgling recreational #cannabis industry: https://t.co/0wptGkiy7c @FlowKana h/t @andrewsheeler #ag #CACannabis #CAjobs #farming #jobs

— CA Assoc of Counties (@CSAC_Counties) November 16, 2019

Grupo Flor, a diversified company with consumer brands and cultivation facilities in Monterey County, where industrial-scale cultivation is ongoing in greenhouses originally built for the floral industry, is shedding 35% of its workforce. CannaCraft, based in Santa Rosa and manufacturer of popular brands including the AbsoluteXtracts brand of vaporizer cartridges, said it would cut 16% of its staff, according to Marijuana Business Daily.

PAX Labs, maker of the PAX Era vaporizer (and a company previously associated with embattled Juul, with which it shared a former parent company), also announced job cuts of 25% in October.

Little of this should be surprising given the broader context. For months, especially in California, every indication is that the legal cannabis market has failed to meet initial projections. It’s a safe bet that companies took the state estimates into account when pitching investors and calculating growth and revenue and now that all of those numbers have come in smaller than hoped-for, companies are making the “necessary adjustments,” which in corporate speak means getting rid of workers.

All companies cited the slow-to-develop legal market as the chief cause of their fiscal woes and subsequent layoff wave. According to an estimate from BDS Analytics and ArcView cited by Flow Kana’s Steinmetz, only one-quarter of Californians’ cannabis spending is captured by the legal market — a low number that’s remained flat since sales began in January 2018.

This was not what was promised!

“No one who worked on or voted for Prop. 64 would say that less than half of total sales is success,” Steinmetz wrote in a statement. “The combination of overtaxation, overly-complicated regulations, and lack or dispensaries due to local moratoriums have created significant imbalance in the biggest legal marijuana industry in the world.”

According to an estimate published in the New York Times earlier this year, there were as many as 300,000 jobs in legal American cannabis. Most of them were low-paying, entry-level retail or agricultural jobs, but at least these jobs still existed. 

The woes are not limited to California, or to the United States. The layoff wave follows serious revenue projection misses by Canadian publicly traded companies.

Can this be halted, or reversed? Maybe, but to do so will require a significant overhaul that isn’t coming anytime soon. California localities are still given broad powers to ban retail sales and many have. As Steinmetz told 60 Minutes on the CBS News program’s visit to Mendocino, there are more legal sales outlets in Oregon than in California. Lower taxes, direct-to-consumer sales moderated by the state?

Maybe, but all of that would require action by the state Legislature and the annual lawmaking season is done until next year. That might be too late. The pessimists’ view was that legal cannabis was riding the wave of a bubble that popped, which means more pain could be on the way.

TELL US, are you surprised that the cannabis industry in California is smaller than projected?