Over the coming decade, cannabis is liable to be one of the fastest-growing industries in the world. Although estimates on Wall Street vary wildly -- which is to be expected in an industry that has no modern legal precedent -- the legal pot industry could see sales rise between five and 18 times by 2030 over the $10.9 billion generated in 2018.
Marijuana is also forecast to be a significant job creator. As of early 2019, more than 211,000 jobs were now tied to the U.S. cannabis industry -- the U.S. is the crown jewel of the global marijuana market -- with 64,000 jobs added in 2018 alone.
As the North American weed market expands, the expectation is that job opportunities will continue to bud in the marijuana space. And remember, this isn't just about growing. Opportunities exist for processors, delivery, and a host of ancillary needs, such as financing, real estate, and consulting specialists.
Job cuts are becoming a norm in the marijuana industry
However, the rapidly growing cannabis jobs market appears to have hit a snag. Over the past month, five notable public and private players have announced job cuts. In no particular order, these are:
- HEXO (NASDAQ:HEXO): In its preliminary fourth-quarter update, HEXO announced that it would be cutting 200 jobs from a variety of departments to better align with industry challenges. HEXO wound up blaming a trio of problems for this surprising move.
- CannTrust (OTC:CNTTQ): On the same day that HEXO gave word of pending job cuts, embattled grower CannTrust said that it would be temporarily shedding up to 140 jobs, given that its cultivation and sales licenses are suspended by Health Canada. CannTrust hopes to rehire these workers next year, after it regains compliance (and its licenses). The company aims to save 400,000 Canadian dollars a month with these layoffs.
- Eaze: California-based delivery service Eaze announced in early October that it would be cutting about 20% of its workforce (36 people), although it didn't offer much in the way of specifics behind why the cuts were needed.
- Weedmaps: In mid-October, marijuana advertiser Weedmaps announced that it was laying off 100 workers, or a quarter of its workforce. The company cited weaker funding prospects and a slower-than-expected launch of recreational marijuana in California and Massachusetts for the cuts.
- PAX Labs: Just this past week, popular vape device-maker PAX Labs disclosed that it was cutting 65 jobs, or a quarter of its labor force, following a revenue miss. The ongoing vape-related health scare may also have something to do with these layoffs, but PAX didn't mention this in its disclosure.
If marijuana's long-term prospects are so rosy, why have pink slips suddenly become a weekly occurrence? Let's take a closer look by region, because the challenges Canada is contending with aren't necessarily the same as those in the United States.
Why Canadian pot companies are cutting jobs
In Canada, there are a variety of regulatory and procedural issues pressuring the marijuana industry.
Regulatory agency Health Canada, for instance, has been unable to keep up with an enormous backlog of cultivation and sales license applications. Even though changes have been made to the growing license-application process, Health Canada isn't going to work its way through this backlog anytime soon. This has led to exceptionally long wait times to gain clearance to grow or sell cannabis, and it's driven a lot of consumers to illicit producers.
Likewise, marijuana shortages can be traced to the slow rollout of physical dispensaries in certain provinces. Ontario, for example, has one open dispensary for every 604,200 people in the province. Ontario could probably house as many as 1,000 retail locations, and this slow rollout is ensuring that little legal product is winding up in the hands of consumers. HEXO specifically cited the lack of retail dispensaries in certain provinces as one of the reasons it trimmed its fourth-quarter sales guidance and cut 200 jobs.
Canadian pot companies are also dealing with a practically insurmountable pricing gap between legal weed and black market marijuana. In the third quarter, Statistics Canada reported that black market marijuana was 45% cheaper on a per-gram basis than legal pot. This is what coerced HEXO to recently announce the launch of Original Stash, a value brand designed to compete with black market marijuana on price. Though this line could be successful on a volume basis, it could cripple HEXO's margins.
Here's why U.S. cannabis businesses are trimming jobs
Comparatively, U.S. cannabis jobs are being lost predominantly as a result of high tax rates.
In California, legal marijuana consumers are paying a state and local tax, as well as a 15% excise tax, and a wholesale tax that varies based on whether the product is in the form of leaves or dried flower. Depending on the locale, California residents could be paying up to a 45% tax rate on cannabis.
Additionally, this doesn't factor in the costs of laboratory testing done by distributors, which you can be sure are being passed along in the final price of legal pot. There's simply no way that legal marijuana in the Golden State can compete with black market prices, which is why total weed sales actually fell in 2018, the first year of recreational pot legalization, to $2.5 billion from $3 billion in 2017, when only medical marijuana was legal.
A sort of Swiss cheese legalization effort at the state level is also causing problems. Even though 11 states have given the green light to adult-use marijuana, municipalities have the final say on whether a retail location can be opened or not. In California, close to 80% of the state's municipalities have banned recreational pot stores thus far. This is another means by which consumers continue to be funneled into the black market.
And don't forget the lack of financing options in the United States. Since cannabis remains classified as a Schedule I drug at the federal level -- i.e., entirely illegal, prone to abuse, and not recognized as having medical benefits -- banks have been mostly unwilling to work with pot businesses. This means little or no access to basic banking services, even including something as simple as a checking account.
While many of these North American problems are fixable, none of these issues is going to be remedied overnight. This means cannabis companies have no choice but to align their workforces to match up with the currently challenging conditions throughout North America.