The cannabis industry in North America is facing an ‘epidemic’ of recent job layoffs and a plummet in the price of pot stocks.
This week, California-based Flow Kana
was forced to cut 20% of its workforce, although CEO Mikey Steinmetz has
pointed the finger of blame towards the state.
“It was one of the toughest decisions
that I’ve ever had to make,” he said.
“It almost feels like an epidemic of companies of similar size going through
This statement comes after similar
companies such as Ease and Weedmaps were also reportedly laying off staff
Alongside the CEO of Eaze stepping
down, the cannabis delivery giant announced that 36 members of the workforce
were let go, which represents around 20% of their overall workforce.
Cannabis advertising giant Weedmaps
via the CEO Chris Beals on Twitter that they had resorted to laying off more
than 100 people from various departments, amounting to around 25% of their
total workforce, due to the slow development of the recreational cannabis
market in California.
There are a number of theories as to
why the cannabis industry is currently in the midst of a transitory phase. Some
have suggested that it is the first signs of the hype bubble popping, while
others have claimed that the ongoing issue of difficult banking arrangements
has halted innovation.
Despite cannabis being legal in
California, the plant is still illegal on a federal level, which means federal
owned and insured banks are hesitant to allow cannabis companies to utilise
The banking issue was seemingly making
headway due to a Californian bill which would allow both banks and credit
unions to begin business with weed companies on a limited basis. But this was
then stopped in its tracks after the sponsor, Senator Bob Hertzberg announced
he was pulling out of the agreement due to changes in the bill, deciding it
would be postponed until early 2020.
Fear of chastisement
Sen Hertzberg reinforced that “if we’re
going to do this, we have to do it right”, when reassuring that Senate Bill 51
would be committed to, which would give financial unions unique licences to
accept deposits from cannabis companies and allow them to open accounts,
without fear of chastisement from the federal system.
Allowing weed companies to utilise
traditional banking services would also permit firms to easily obtain a
business loan should they need one, thus avoiding having to resort to cutting
jobs and laying off a hefty chunk of their capable workforce.
But Steinmetz has criticised the state
for not allowing enough retail cannabis stores, with just one store per 34,256
of adults currently in operation.
75% of Californian cities and counties
still forbid cannabis retail sales despite Proposition 64, which legalised the
recreational use of cannabis being put through more than three years ago.
“We need more retail, and it’s not in
a few months. We need retail immediately,” Steinmetz said
The failure to issue licenses quickly
enough in order to create a more stable and high-functioning market for legal
recreational cannabis has also been criticised, as California lags behind most
other states that have the same legalised cannabis status.
The lengthy and bothersome path to
opening a state-authorised legal cannabis store also means that potential
shop-owners continue to operate via the black market, selling unregulated
cannabis to would-be customers who would all contribute to paying taxes, which
is ultimately beneficial for the state.
The large tax burden faced by legal growers, which can be as high as 90%, pushes those who don’t operate as a conglomerate company back into the shady cannabis underworld, an issue that the state could simply rectify by amending the fixed rates of $9.25 per ounce of grown flower, to percentage based.
Forced into layoffs
It seems as though Flow Kana, Eaze and
Weedmaps’ decision to lay off more than 20% of their workforce is just the tip
of the iceberg, as two more California-based companies, CannaCraft and Grupo
Flor, have both recently been forced into downsizing due to cash flow concerns.
More than 600 job layoffs were
reported throughout the industry in October, marking an early warning sign for
the cannabis industry which still remains steeped in its infancy.
Both companies blamed
the recent job cuts on financial challenges due to “slower-than-anticipated
growth” of the legal market in California along with investment deals that fell
through making business expansion and necessary cash for future projects a
dream of the past.
Grupo Flor’s CEO Gavin Kogan
emphasised that the company layoffs were painful and that “it’s not the end of
the world. It’s just a difficult time in the industry for everybody”, pointing
to the fact that multiple cannabis businesses in the area have had to undertake
The ‘epidemic’ has understandably
concerned hopeful investors and traders, with cannabis stocks sliding
dramatically over the past week.
Canadian cannabis giant Hexo’s stock
is now below the $2 mark – down a jaw-dropping 77% from its peak in April,
while it is also down 55% since the first week of October.
to Business Insider, the average deal size from venture capitalists has also
fallen dramatically since the turn of the year.
The decline of businesses making a
large profit and ultimately letting workers go began more than a year ago, but
it was not initially noticeable as it was mainly a problem for smaller
companies. However, since larger corporations have been hit by the same issues,
industry observers have picked up on the rocky road several businesses are
The cannabis industry is no longer the
gold mine it used to be and it is becoming less attractive to investors as the
tribulations it’s facing become more apparent.
Whether the blame falls to the lack of
banking options, lack of retail spaces, poor managerial decisions, lack of
profits, or a mixture of all these issues; the reality of the situation is that
more job cuts are to be expected, while the cannabis industry faces the same
problems all types of mainstream businesses also experience, particularly
during the initial beginning phase of their existence.