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Regulators Beware: Cannabis Linked to Job Loss

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Cannabis is slowly picking up steam again. More states are pushing to legalize either medical or recreational cannabis. Utah is boosting its medical cannabis business by opening more dispensaries. Meanwhile, Virginia has introduced a new proposal to decriminalize marijuana by 2020.

However, it appears the challenges never end in the marijuana sector. Cannabis companies and retailers have been cutting down their workforces. The cannabis sector is contributing to job losses.

Cannabis linked to job loss

Yesterday, a BNN Bloomberg article reported that US employers had slashed 4% of their workforces in the first 11 months of 2019 compared to 2018. Apparently, the cannabis sector also contributed to the cut. Data from consultancy staffing company Challenger, Gray & Christmas said that job cuts between January and November totaled 559,713 compared to 538,659 in 2018. The various factors that caused the workforce reduction as per their data were as follows:

  • Restructurings and closings led to the highest cuts of more than 255,000 positions.
  • Cost cutting and bankruptcies led to 100,000 cuts.
  • Tariffs and other trade difficulties led to 15,000 cuts.
  • A lack of cannabis regulation contributed to 100 cuts.

Regulations have taken a bite out of the cannabis sector. Marijuana stocks have seen some of their worst days in 2019. The industry suffered tremendously.

CannTrust took a big hit

This year, CannTrust (CTST) was involved in regulatory scandals, casting a shadow of doubt on all cannabis companies. Following an investigation, Health Canada suspended CannTrust’s license. As a result, the company removed 20% of its workforce, according to a Reuters report in September. The company cut down around 180 employees, mainly from the cultivation and customer service departments.

The company said it had made the difficult decision to achieve annual cash savings of about $9 million. It would reduce $2 million from the company’s future severance costs, according to a Financial Post article. CannTrust also fired its CEO in July after Health Canada started its investigation.

CTST suffered badly as a result. And so did the entire sector. It should be noted how essential regulations are for the cannabis sector.

Which other cannabis players reduced their workforces this year?

In October, HEXO Corporation (HEXO) also announced that it was reducing its workforce by 200 positions owing to the difficulties in the current market environment. The company said the move was to drive profitability and long-term stability. It missed its revenue guidance in the fourth quarter of fiscal 2019 and also withdrew its fiscal 2020 outlook. Again, the marijuana sector took a hit.

Recently, MedMen (MMEN) (MMNFF) also announced its strategic plans for capital allocation. Its 90-day initiative mainly focuses on driving positive EBITDA. Hence, the company laid off 190 employees in November. MedMen CEO Adam Bierman said in an interview with BNN Bloomberg, “The industry is in the midst of a ‘harsh and quick’ transition from growth to retrenchment. This is about preserving and protecting, and part of that is bolstering our balance sheet for the times ahead.”

BNN Bloomberg also said that California-based Weedmaps had removed 100 jobs in October. The company took this step to remove unlicensed retailers from its website, the Bloomberg report said.

Marijuana stocks’ performances

Marijuana stocks have fallen a lot this year. YTD (year-to-date), HEXO has fallen 60.8%, while MedMen has fallen 85.8%. CannTrust has lost a whopping 83.8% YTD. The Horizons Marijuana Life Sciences Index ETF (HMMJ) has lost 56.3% YTD.

All this turbulence brought questions to many investors’ minds. To learn more about what happened with cannabis stocks in 2019, read Cannabis Investing in 2019: A Year of Big Reversals.

A lack of proper regulations is forcing cannabis companies to take drastic measures to stay profitable. Cannabis is a growing industry, so ups and downs are likely. Because of this growth, marijuana legalization should be one of the most important topics of discussion in the US.

Will 2020 mark a turnaround in the cannabis sector? Stay with us to know more.

Be sure to follow 420 Investor Daily for more updates about the cannabis industry.

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