Can massive job cuts in the North American cannabis industry effectively reduce costs or will they worsen an already difficult situation? Some business researchers suggest that extensive layoffs, which have been observed in the technology, finance, and media sectors, may be counterproductive when it comes to cost-cutting.
According to Jeffrey Pfeffer, a professor at Stanford Graduate School of Business, layoffs may not necessarily cut costs since laid-off employees may be rehired as contractors, with the company paying the contracting firm. In addition, Pfeffer's research has found that tech layoffs typically fail to increase stock prices, productivity, market share, or revenue. He believes that salary reductions across the workforce or upgrading worker skills may be better alternatives to cutting employees.
Marijuana industry CEOs in North America, who have had to implement layoffs in recent months, acknowledge that it is a difficult decision for everyone involved. However, they argue that unique conditions in the cannabis industry have made releases necessary for short-term survival.
Unlike the technology industry, marijuana cultivators and retailers face unique challenges because marijuana is still illegal under federal law in the United States. Moreover, industry executives assert that companies are under added pressure as markets mature and competition increases. Sales have declined in older markets such as California, Colorado, Oregon, and Washington State, after a sales boom following the outbreak of the COVID-19 pandemic in early 2020.
For instance, in November, The Parent Co., a California-based multistate marijuana operator, reported a net loss of $31.3 million in its third-quarter earnings and laid off 33% of its workforce as of Oct. 27.
Marijuana companies have been implementing layoffs to save costs in the face of declining sales and increasing competition. In North America, marijuana cultivators and retailers face unique challenges due to the illegal status of marijuana under federal law in the United States. Layoffs have been strategically made to shed nonstrategic capabilities and focus on core strengths, such as brand-building, operations, and running stores. For example, California-based multistate marijuana operator The Parent Co. (TPCO) outsourced its distribution to wholesale platform Nabis, resulting in significant cost savings. However, layoffs can be hard on outgoing and remaining employees, creating uneasiness and distrust toward management. The industry also faces challenges such as high taxes, declining recreational sales, and wholesale prices. The Canadian government has been urged to reduce taxes and fees to prevent further layoffs and negative impacts on communities and ancillary businesses.
