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MMLG walks you through the spate of cannabis layoffs and the headaches around cannabis investment
November 20, 2019

A Silver Lining

Ugly earnings numbers and layoffs last week reflected an industry-wide wave of downturn that’s been building its unfortunate momentum through 2019. Seemingly no one was safe from bad news last week, as companies big and small took it on the chin. Between thisthis, aaaaand this, last week was “not so hot” for the cannabis industry. Why is the sky still falling for the biz, and are there any silver linings? Let’s walk through it together, gang.

Last week’s cannabis stocks earnings reports were brutal

Basically every publicly traded canna stock not named “IIPR” or “TCNNF” fell down a very steep set of stairs last week. Aurora, Tilray, Canopy Growth and the canna ETFs, all were brutalized. The good news? Well, maybe things bottomed out. The ETF THCX is up 4.20% as of publishing. Why’s that? It’s because Altria doubled down on their investment in Cronos, affording the entire sector some needed relief. As the Seeking Alpha note indicates, this might not be that big of a deal, but with prices in tatters everywhere in cannabis stocks even a little positive news is going a long way.

Stocks are whimsy, there’s real-life damage in the cannabis industry to assess

But what’s going on here? Why the crashing prices and sturm und drang  we’ve seen for the better part of 2019? After all, wasn’t this year supposed to be better than 2018? Yes and no.

Despite state officials in both New Jersey and New York dragging their feet on legalization, 2019 has seen Illinois legalize adult-use and, if you haven’t heard, Michigan is opening rec-use sales on Dec. 1. Additionally, Missouri launched a medical program, and Oklahoma’s medical program continues to outpace all expectations. To say nothing of the smaller successes the industry’s seen in states such as Ohio.

But for those glittery successes, problems relating to policy and regulations in legal states and provinces in 2019 have caused increasingly dire issues related to the supply chain and operations for the legal and licensed cannabis market. A quick review:

  • In California we’ve seen stalled and slowed rollouts of licensing cause headaches for operators left to choose between shutting down and losing revenue due to no new license vs. operating with an expired license and risk fines and suspension.
  • Meanwhile, in Cali. and elsewhere, the unregulated market has continued to flourish due to not only the high costs of operating above the board, securing licensure, etc. As we discussed in our recent op-ed, the unregulated market will continue to flourish as long as it perceives the risk of doing business in an unregulated fashion outweighs going straight.
  • Furthermore, punitively high tax rates for consumers and operators alike are causing the licensed market to stagnate and buckle under the weight of too much supply and the dreamy expectations of institutional investors and financiers who expected a pay day by now.
  • Likewise, with no sudden pay day waiting around the bend, investors have tightened up their pursestrings and are now approaching any and all potential investments with a honed, skeptical eye towards revenue.

For these reasons and more, the plant-touching industry and some of its ancillaries are seeing “market corrections” translate into heartbreaking layoffs, closures and more.

Don’t worry, there’s (a little) good news

The good news? Twofold. For starters, investors, rightfully skeptical of dumping money any ol’ place, need to take the time to look at small-to-medium, independent operators in legal states. While MSOs are taking it on the chin due to being overleveraged, smaller operators who have kept a laser-like focus on profitability are killing it in major legal markets such as California.

Secondly, and this is for those smaller operators considering responsible growth opportunities, take a look at folks who have lost their job. These are trained professionals who have been through the fire and have the expertise that can help your company grow. Sift through the resumes, consider the ones that make sense, hire the right ones.