Cannabis Businesses Forced to Make Difficult Decisions Amid Economic Crisis

The cannabis industry experienced tremendous growth in the past decade, with many states across the US legalizing the use and sale of marijuana. However, the industry has taken a hit in recent years due to a variety of factors, and the trend of layoffs and cutbacks in the cannabis industry is set to continue into 2023.

Although analysts predict the US economy will see a decrease in inflation, it is unlikely to trickle down to the cannabis industry overnight. Inflation continues to influence wages, as employers are less apt to give raises to their employees. As the cost of everyday goods rises, people must prioritize their spending habits, and cannabis expense is low-hanging fruit for budget-wise consumers.

And the ripple effect is being felt across the entire industry.

2022 - The Year of Layoffs

The pandemic provided the perfect conditions for cannabis growth. As people stayed home, with expendable stimulus money, dealing with the stresses of pandemic strife and social distancing, the cannabis industry benefited.

However, as consumer purse strings tightened with post-pandemic inflation, the industry was hit hard with cutbacks. A few of the early cuts included:

• Akerna cut 56 positions in May 2022
• Dutchie laid off 8% of its workforce in June
• The Flowr Corp fired 40% of its staff in June
• Aurora Cannabis cut another 12% of its global workforce
• Curaleaf terminated 50 positions in August
• Leafly Holdings terminated 56 in October

Unfortunately, these layoffs were only the tip of the iceberg. As the year continued to see significant sales declines, many cannabis-related companies reported additional cutbacks and layoffs.

November and December

• WeedMaps cut 25% of its workforce or 175 employees
• Curaleaf cut another 220 employees
• Dutchie laid off another round of employees
• Trulieve cut 36 employees in Pennsylvania and more in Florida
• Leaflink cut 80 jobs
• Springbig eliminated 37 jobs, 23% of its workforce

Will the Trend Continue for 2023?

With economic uncertainty continuing into the new year, it’s no surprise to see the cutbacks and layoffs continue. Colombia Care Inc. kicked off 2023 by announcing 73 layoffs effective February 28^th.

Unfortunately, data out of Colorado also portrays a rather dismal outlook. Starting in June of 2021, the Colorado cannabis market has reported 17 months of declining sales, and recreational prices have decreased by 23 percent.

An interview in 5280 with Jonathan Spadafora, President of Veritas Fine Cannabis, highlights how the downturn impacted their business. In June 2022, the company made the difficult decision to shut down one of its cultivation facilities and lay off 33 employees.

Early-Adopters Take Biggest Hit

When Colorado and Washington legalized cannabis for adult use in 2012, they were the pioneers of a new wave of retail cannabis. The novelty of consuming cannabis legally launched the cannabis tourism industry. People traveled thousands of miles to partake in the prohibited party favor.

However, as legalization began to expand, the novelty began to wane. Consumers no longer needed to travel to Colorado to buy legal cannabis. For example, with the addition of New Mexico recreational cannabis, Colorado’s southern border towns experienced a 40-50% decline in sales.

As legalization continues, the market is balancing out. Early adopters will continue to lose sales to the new markets until federal prohibition ends and interstate commerce becomes possible.

Could Legislative Changes Make a Difference?

Legislative changes could make all the difference for cannabis businesses. Unlike other legal industries, the cannabis industry doesn’t benefit from traditional banking and lending opportunities to help bridge the gap.

Tax code 280E also prevents the industry from deducting businesses to make operating costs more manageable. Many expenses, such as testing, licensing, and packaging costs, are non-negotiable. As such, when forced to cut costs, labor is one of the few areas where cannabis operators have any control.

Interstate commerce will undoubtedly create another substantial shift in the cannabis industry and could provide added opportunities for well-established brands to expand their footprint. But interstate commerce will come with new challenges.

While it may take time, flexibility, and the ability to adapt to variable economic conditions and legislative environments, the cannabis industry has been established, and rolling back a decade of industry innovation will be next to impossible.

Although the market may ebb and flow, cannabis has been in demand for thousands of years. The only direction is forward.