As recently as early 2019, the marijuana industry was viewed as the greatest job creator on this planet. According to cannabis review and rating website Leafly, there were more than 211,000 jobs in the U.S. tied to the marijuana industry, with 64,000 jobs having been added in 2018 alone.
Furthermore, with job growth of 21% in 2017, 44% in 2018, and an estimated 20% in 2019, Leafly's projection implied cannabis employment growth of 110%, in aggregate, over a three-year span.
While this job growth appeared as if it could continue for some time to come throughout North America, the cannabis industry hit numerous snags in 2019. In Canada, regulatory-based supply issues stymied growth, while in the U.S., a combination of high tax rates in recreationally legal states and a resilient black market hampered expansion. As a result, we've gone from hyper-expansion mode to actually witnessing brand-name cannabis stocks laying off workers.
Here are four well-known pot stocks that have recently eliminated jobs.
Image source: Getty Images.
1. HEXO
Though the marijuana job market is liable to remain fluid for the foreseeable future, no job cuts were more pronounced than HEXO's (HEXO) elimination of 200 jobs from a variety of divisions in October. These cuts from HEXO follow other cost-cutting initiatives, including the idling of 200,000 square feet of cultivation space at the flagship Gatineau facility, as well as the shutdown of the Niagara campus, which was acquired with the Newstrike Brands acquisition.
HEXO, which had been on track for 150,000 kilos of peak annual production and had forecast $400 million Canadian in sales for fiscal 2020, completely pulled its sales forward sales guidance and looks to have reduced its peak output potential by a third.
This is all in an effort to reduce the company's cash burn. Then again, with CEO Sebastien St-Louis suggesting in the company's fiscal fourth quarter conference call that HEXO would need 20% market share throughout Canada to be profitable, it's opened some eyes to just how shaky the company's long-term outlook might be.
2. MedMen Enterprises
In mid-November, vertically integrated dispensary operator MedMen Enterprises (MMNFF) announced that, among a cadre of cost-cutting moves, it would be laying off more than 190 employees from its workforce of 1,300-plus. The move is expected to save MedMen roughly $10 million a year, and the company didn't rule out additional job cuts in the future. The company also offered up a plan to sell a number of non-core assets to raise capital at the same time it announced its headcount reduction.
Among cannabis stock, none are arguably in worse shape, financially, than MedMen. This is a company that recently admitted to offering its own common stock to pay off vendors, and in October shelved the all-stock acquisition of multistate operator PharmaCann, likely because it didn't have the capital to take on PharmaCann's existing locations or its expansion plans. With limited access to traditional forms of financing, MedMen looks to be in serious trouble.
Image source: Getty Images.
3. CannTrust Holdings
The writing was absolutely on the wall when embattled Canadian pot grower CannTrust Holdings (CNTTQ) announced that it would be laying off up to 140 of its employees in late October. The move comes after the company's cultivation and sales licenses were suspended by regulatory agency Health Canada in September for illegally growing cannabis in five unlicensed rooms for a period of six months.
Following the headcount adjustment, CannTrust noted that it hopes to rehire these workers within a year. But in order to so, it's going to need to regain compliance with Health Canada, which won't be an easy task.
To date, CannTrust has destroyed $58 million worth of illicitly grown inventory from these unlicensed rooms, and has taken steps to demonstrate to Health Canada that it's following all applicable laws tied to the Cannabis Act. It remains to be seen if CannTrust will get its licenses back.
4. Tilray
The latest cannabis stock to announce job cuts is Tilray (TLRY), with the British Columbia-based company noting its intent last week to shed 10% of its headcount. With 1,443 employees, this puts Tilray's layoffs on par with those of CannTrust.
Last March, Tilray completely shifted its game plan by de-emphasizing future investments in Canada in favor of pushing into the EU and United States. While the EU and U.S. should have higher long-term sales appeal, the move was a bit confusing, considering that Canadian weed sales are just getting off the ground.
Nevertheless, beginning its strategy anew means spending fairly aggressively in foreign markets to establish a presence. This has, unfortunately, led to widening operating expenses and a shrinking cash position. In my view, additional cost-cutting may be necessary.
Image source: Getty Images.
Bonus: Aurora Cannabis may be next
It's also possible Aurora Cannabis (ACB -2.96%), the most popular cannabis stock in the world, may be next to shed jobs. According to a BNNBloomberg report on Feb. 5 from an unnamed source directly familiar with the matter, Aurora Cannabis is planning to cut up to 10% of its approximately 3,400-strong workforce.
For those who may recall, Aurora Cannabis has been especially aggressive in the cost-cutting department of late, with the company completely idling construction at Aurora Nordic 2 in Denmark and Aurora Sun in Alberta. These halted projects, along with putting the one-million-square-foot Exeter greenhouse up for sale, should remove well over 400,000 kilos of run-rate output from the equation. With possible cash concerns on the horizon, it wouldn't be surprising if these rumors eventually turn out to be true.
It's time to face the facts: the green rush is encountering some serious growing pains.
