Cannabis firms are cutting hundreds of jobs as the once hot industry contends with a 'toxic' landscape

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cannabis

  • Cannabis companies have been hit with a wave of layoffs in recent weeks, amounting to close to 900 jobs across both startups and public companies.
  • The layoffs come amid a broader downturn in the sector. One index of marijuana stocks lost over 50% of its value since its high in January of last year.
  • On the private side, a tight funding environment has made it difficult for growth-stage cannabis startups to raise capital.
  • Click here for more BI Prime stories, and subscribe to our weekly cannabis newsletter, Cultivated. 

The once red-hot cannabis industry is coming back down to earth. 

Over the past few weeks, cannabis companies — ranging from venture-backed startups like Pax to giants like CannTrust — have announced a series of job cuts, amounting to close to 900 laid-off workers in the sector as a whole.

There are unique reasons for the job cuts at each company, but industry analysts and experts say the operating environment for cannabis companies has entered a uniquely challenging phase. Headwinds include illnesses linked to vaping, lower-than-expected retail revenues in Canada and states like California, as well as legislative and regulatory hurdles that make accessing capital much more expensive than in other industries.

It’s also become much more difficult for companies to raise money, thanks to cratering share prices for public companies and a shortage of investors for private firms.

The Marijuana Index, a composite of cannabis and cannabis-related stocks in the US and Canada, has lost over 50% of its value since its high in January of last year. CannTrust has seen its value crater close to 90% since its high in March after the company was found to be illegally growing cannabis after an investigation by Health Canada, the regulatory agency responsible for overseeing legal cannabis.

The decline in valuations has also made big cannabis mega-mergers harder to close, with companies like dispensary-operator MedMen pulling out of deals altogether. MedMen laid off 190 employees in November and divested stakes in a number of brands it invested in a push to become cahs-flow positive. 

An analyst at the investment bank Stifel summed it all up as a “toxic” operating environment. 

“It’s put a cloud over the industry,” Peter Horvath, the CEO of cannabis company Green Growth Brands, told Business Insider in an interview on Thursday. “The market has corrected — but has it corrected far enough? I don’t know.” 

Business Insider is tracking these job cuts here and will keep updating as we learn more:

Got a tip? Contact this reporter via email jberke@businessinsider.com, or Twitter DM @jfberke. Encrypted messaging app Signal number available upon request. 

This article was published on October 25 and has been updated with new information.

Hexo Corp – 200 layoffs

Company: Hexo Corp

What it does: Cannabis producer based in Gatineau, Quebec.

Layoffs: 200 workers on October 28, or a quarter of workforce. Chief Marketing Officer Nick Davies and Chief Manufacturing Officer Arno Groll were among those laid off.

What went wrong: The company cited the slow rollout of retail stores in Canada, delays in government approval for cannabis derivative products, and early signs of pricing pressure on cannabis as reasons for the layoffs and stock declines. 

The company said it was shutting down several facilities as well.

“The actions taken this week are about rightsizing the organization to the revenue we expect to achieve in 2020,” CEO Sebastian St-Louis said in a statement.

On November 15, Hexo released a statement saying there was a “limited amount” of unlicensed cannabis grown at a cultivation facility the company acquired from Newstrike Brands, and some of that illicit cannabis made its way into the regulated market.

 

CannTrust – 140 layoffs

Company: CannTrust

What it does: Cannabis producer based in Ontario, Canada.

Layoffs: Laid off 140 employees on October 27, or a quarter of its remaining workforce. In August, the compay laid off 180 employees, or 20% of its workforce. 

What went wrong: The company is seeking to pare back expenses following the revelations that it was growing illicit cannabis in one of its facilities. In July, Health Canada opened an investigation into the illicit growing. The federal agency suspended CannTrust’s growing license in September.

The company’s former CEO, Peter Aceto, stepped down amid the fallout as well. Earlier this month, CannTrust was forced to destroy $77 million worth of cannabis in order to regain regulatory approval in Canada. 

 

 

 

Weedmaps – 100 layoffs

Company: Weedmaps

What it does: Online cannabis dispensary director based in Southern California. 

Layoffs: 100 employees, or a quarter of its workforce in October. 

What went wrong: Weedmaps CEO Chris Beals said in a Medium post the layoffs were the result of the slow rollout of legal cannabis dispensaries in California and other legal states like Massachusetts.

“Additionally, both the overall tech and cannabis capital markets have experienced tightening through 2019 that has limited the ability to predictably leverage outside capital to fuel growth during rapid expansion periods,” Beals said. 

Weedmaps has faced regulatory scrutiny over listing illicit cannabis dispensary and delivery services on its site and app. In September, the company released a plan to remove all unlicensed dispensaries from its database by requiring them to provide their state license numbers.

 

Pax Labs – 65 layoffs

Company: Pax Labs

What it does: Maker of cannabis vaporizers, based in San Francisco. 

Layoffs: 65 workers, or 25% of its workforce in October. 

What went wrong: Fallout from the spate of vape-related lung injuries — which have caused 34 fatalities in the US so far — has affected the cannabis industry. 

Prior to that, Pax had been something of an investor darling this year, landing a $420 million funding round in April from a range of institutional investors including Fidelity and Tiger Global Management. The round, first reported by The Information, pushed the company into unicorn territory, valuing it at $1.7 billion.

Pax in September let go of its CEO, Bharat Vasan, after a little over a year on the job.

In an interview with Business Insider in January, Vasan said the company was talking to bankers about a potential IPO in 2020. That seems to not be the case anymore, according to statement Pax gave to Crunchbase News.

“[A]ny talk of an IPO timeline was premature,” Pax’s head of communications, Dianne Gleason, said.

 

 

Eaze – 36 layoffs

Company: Eaze

What it does: Cannabis delivery platform, based in San Francisco. 

Layoffs: 36 workers or 20% of its staff in October. The company also replaced its longtime CEO, Jim Patterson, with Rogelio Choy, formerly the startup’s COO. 

What went wrong: Eaze is facing a protracted legal battle with Toronto-based cannabis company DionyMed, after DionyMed alleged Eaze was using shell companies to hide credit card charges for cannabis products. 

In August, Business Insider broke the news that Eaze was seeking to raise another $50-75 million at a $300-400 million valuation on top of the $65 million the company had raised in December. 

The startup has been forced to scale back its lofty ambitions of delivering $1 billion worth of cannabis. The company said in documents obtained by MarketWatch that it would sell about $412 million worth of cannabis products on its platform in 2020. 

 

MedMen — 190 layoffs

Company: MedMen

What it does: Cannabis cultivator and retail chain

Layoffs: 190, or 20% of its employees, on November 15.

What went wrong: The hits keep coming for the cash-starved MedMen. The company announced it will be laying off 190 employees on Friday evening, including 80 corporate-level employees, in a push to be cash-flow positive by the end of 2020.

MedMen is also planning to sell off stakes it bought in cannabis brands — which it says will net the company $8 million – and has engaged Canaccord Genuity to “explore strategic alternatives” for cultivation licenses and stores “not deemed critical to the company’s retail footprint.”

MedMen also plans to limit new store openings and delay investments in the medical marijuana markets in New York and Arizona.

On top of all that, MedMen announced earlier in November that it was selling its stake in Treehouse, a cannabis real estate investment trust.

In the past few months, MedMen has been hit with a litany of lawsuits and top executives departing, including David Dancer, the former CMO, and Michael Kramer, the former CFO. 

Flow Kana — 20% of employees

Company: Flow Kana

What it does: California cannabis distributor

Layoffs: 20% of employees (number of employees not disclosed).

What went wrong: Flow Kana, a California cannabis distributor, announced it was laying off 20% of its workforce on Thursday, November 14. The company did not disclose the exact number of employees affected.

Flow Kana blamed the lack of retail cannabis stores in California and said the “realities and size of the market” has proven to be much smaller than initially anticipated.

In a statement provided to the Sacramento Bee, Flow Kana CEO Mikey Steinmetz said the “alarm bell is ringing” for California cannabis companies and urged the state to help remedy the situation. 

 

Grupo Flor – 30 layoffs

Company: Grupo Flor

What it does: California cannabis cultivator and retailer

Layoffs: 30 employees or 35% of its workforce.

What went wrong: Grupo Flor laid off 30 employees earlier in November after a planned investment fell through. The company also put its plans to invest in a Colombia cultivation center on hold.

“It’s not the end of the world. It’s just a difficult time in the industry for everybody,” Grupo Flor CEO Gavin Kogan told Marijuana Business Daily. 

CannaCraft —40 layoffs

Company: CannaCraft

What it does: California cannabis cultivator and retailer 

Layoffs: 40 employees or 16% of its workforce.

What went wrong: CannaCraft laid off 40 employees or 16% of its staff in November. The company cited “slower-than-anticipated growth” of the legal cannabis market in California, per Marijuana Business Daily.

Founded in 2014, CannaCraft raised a $34.9 million Series A funding round in April. 

 

 



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