Given the unpopularity of marijuana stocks these past few months, it's a relief when the rare piece of good news filters down into the industry. This happened last week, with official statistics in Canada -- one of the only countries in the world where recreational marijuana is legal nationwide -- showing substantial growth for the sixth month in a row.
But since this is the cannabis sector in 2019, the good news was accompanied by some bad, specifically job cuts announced by two notable cannabis companies. As a result, many marijuana stocks didn't perform particularly well last week. But then again, given how things have gone for the sector lately, that wasn't exactly a new or unexpected development.
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O, Canada!
Recreational marijuana sales in Canada have now been legal for over a year. And the industry continues to set new financial records. On Oct. 22, government agency Statistics Canada released its latest monthly sales figures for various industries, including the youngest and hottest (cannabis, of course).
Weed's latest record-busting month -- August -- saw just over 127 million Canadian dollars ($97 million) worth of product sold in officially licensed stores. That was almost 19% higher than the July figure. It was also more than double the level of March, which isn't exactly a long time ago.
Some pundits say that since the Canadian market is fully open in theory, those numbers should be far higher. They are right, of course; Canada's cannabis licensing has not been handled well, both at the provincial and the federal level, and progress is agonizingly slow. There should be more dispensaries, and more grow facilities producing much higher supply.
So it's a very good sign that sales have managed to climb as rapidly as they have in spite of the snail's-crawl pace of licensing for both grow houses and retail outlets. This indicates that there is plenty of demand in the country for cannabis products, and the customer base is willing to make significant efforts to obtain them.
Yes, there is a risk that Canada-based cultivators and retailers will lose money while they're forced to effectively sit and wait for a decision on licensing. But the public sector as a whole is sensitive to being seen as an impediment to economic development and jobs growth. It does not want to witness major business failures in any industry.
That's why I think at least one arm of the government responsible for licensing will start taking the scissors to the red tape in the event of a major business failure or big setback on the employment front.
Speaking of which...
2 cannabis companies announce job cuts
The unhappy news during the week was that employee rolls were being reduced at two notable cannabis operators, HEXO (HEXO) and CannTrust Holdings (CNTTQ).
HEXO is letting go of roughly 200 employees, and that scythe is also ripping through the executive ranks. It said that certain high managerial positions have been eliminated, and the company's chief manufacturing officer and chief marketing officer have departed.
The company is based in Canada, and obliquely threw some of the blame in the government's direction. In its press release on the matter, it said its cuts are an attempt at "rightsizing its operations to adjust to a changing market and regulatory environment with a view toward profitability and long-term stability."
Embattled CannTrust, meanwhile, is laying off 180 workers, representing around 20% of its overall workforce, although the cuts don't seem to reach as deeply into the executive suite. For the most part, the company said, the eliminated positions are basically in customer support and cultivation activities.
The company's problems are almost entirely self-generated. In September, Health Canada suspended CannTrust's cultivation and sales license. This occurred several months after the regulator cited the company for unlicensed growing. That quickly widened into a scandal when it became known that top executives were aware of this malfeasance.
The company said in a statement that its job cuts "reflect the current requirements of our business." The pulling of that all-important license has certainly played a big part in CannTrust's labor needs.
Neither set of job cuts is going to make the cannabis industry collapse, in Canada or anywhere else. Even with the wait times to get licensed for grow farms or dispensaries, there are plenty of operators and lots of financial skin in this game. Still, HEXO and CannTrust are well known among marijuana investors, and their moves aren't going to lift confidence in this still chronically money-losing business.
It's a good thing we have those nicely rising Canadian sales numbers then, isn't it?
