Is the Cannabis Recession Here?

Is the cannabis recession here? According to a new study exclusive to Forbes, cannabis industry employment has declined, a first in history.

The 2% reduction comes after six years of double-digit growth. It can hardly be considered a sign of a cannabis recession. However, broader economic trends point to a recession, even a depression, on the horizon.

And the cannabis industry will not be immune to it. In fact, we may already be witnessing signs of the cannabis recession.

Is the Cannabis Recession Here?

According to the Forbes study, the cannabis recession is less about employment numbers and more about lack of capital.

Venture capital funding is down 96% year over year. In both America and Canada, banks have also been no help.

For the first two years of the Biden presidency, venture capital was kept alive by beliefs that the Democrat-controlled White House and Congress would legalize cannabis. Or, at the very least, pass some cannabis banking regulation.

But when 2022 ended without either, investors started putting their money elsewhere. Cannabis stocks have dropped 50% to 70% year over year. 

We’ve covered the covid-inspired cannabis bubble before. That’s where the industry saw an artificial boom fueled by the “end of the world” mentality and the fact millions of people were under a sort of “public health” house arrest.

So people turned to alcohol and other drugs, gambling or adult content to cope with the stress or just simple boredom. Fortunately, many consumers chose benign, nontoxic cannabis for recreation.

But that boom is now over. Coupled with the lack of reform in the United States, the cannabis recession is here. Investors are dropping off, and revenues are down.

Budtenders and trimmers are losing work not because of performance but because the company needs more financial capital.

The cannabis industry is cash-strapped. 

The Numbers

The Forbes study found that while most cannabis jobs are low-paying, there are enough to create massive economic value. 

U.S. medical and recreational dispensaries accounted for $26.1 billion in legal sales. 31% of cannabis jobs are in farming, with retail stores making up 23%. The remaining work is in ancillary work, including marketing, distribution, legal services, manufacturing, and processing.

California experienced the most significant drop in employment – 13% from last year. That’s 12,600 fewer cannabis jobs than available last year.

This translated into an 8.2% drop in sales, the first time since the state legalized recreational cannabis in 2018. 

However, California’s robust “illicit” legacy market – estimated to be 50% of the market – skew these numbers slightly. And because of California’s lack of legal stores and overproduction by legal growers, a price war has launched, resulting in wholesale cannabis prices dropping by 50%.

Colorado is down, too, with a drop in 28% of its cannabis workforce, or 10,481 workers. The state’s legal sales dropped from $2.2 billion in 2021 to $1.8 billion in 2022.

Oregon’s cannabis workforce is down by 21%. 

However, we can explain many of these declines by neighboring states that have legalized. Consumers no longer have to go to Colorado or Oregon for legal weed.

And the numbers reflect this. Missouri just legalized and has hundreds of new retail stores. The same goes for Michigan, where cannabis jobs and revenue are growing.

Florida, too, which has the country’s largest medical cannabis market, saw 3,000 new jobs added.

But one wonders how much of this is sustainable in the long term. When the dust settles, will these new legal states maintain their current level of employment? Or will the cannabis recession come for them too?

Cannabis Recession In Canada?

Has the cannabis recession come to Canada’s legal industry? The Forbes study doesn’t address the Canadian market, but looking at the latest headlines tells the story.

For example, Canadian pot stocks have taken a beating.

Tilray’s stock fell nearly 60% in 2022. That’s down 93% from its all-time high. Considered an industry leader, Canopy has had a year-over-year decline of around 70%.

Canopy’s third quarter in 2022 saw the following:

• $122 million decline in revenue
• $1.83 billion operating expenses (up nearly 1000%)
• Minus $2 billion in net income
• Minus $5.38 in earnings per share, down from a positive number.

2022 also saw Aurora Cannabis decline by almost 80%. If you’d invested $1000 into Aurora in 2013 and cashed out right after legalization in 2018, you would have been $500,000 richer.

If you cashed out now? You’d have about $200.

Even ETFs have dropped. Marijuana Life Sciences, for example, saw a 46% decline in 2022.

Meanwhile, the Cannabis Council of Canada (C3) requests “immediate financial relief” from the federal government. They say excessive regulations, taxes, provincial distributor monopolies, and the general “stigma” of the industry have led to what is essentially a cannabis recession.

Is the cannabis recession here? It sure looks like it. 

Will We See a Cannabis Recession in 2023?

The economy is heading to a recession because of the Federal Reserve in the United States. Interest rates are market-based prices for the money itself. “Setting” an interest rate like it were a public policy is engaging in price controls.

And price controls lead to surpluses and shortages. In this sense, an oversupply of money. 

Since the Dot Com crash at the beginning of the millennium, the Fed has forced interest rates down. This fueled the housing bubble, which the Fed reinflated as an “everything” bubble.

And then covid happened, and governments started handing out money as if it was the money itself that was important.

But you can’t eat pieces of paper. It’s not the money that’s vital, but its purchasing power. And since the creation of the Federal Reserve, the purchasing power of the American dollar has declined year after year with no end in sight.

An economic depression may result in a covid-like demand for cannabis. But it remains to be seen how effective this will be at boosting America’s cannabis industry.

As for Canada, like most of its economic issues, the problem stems from too much intervention from federal and provincial governments. 

For farmers and operators to survive a cannabis recession, the government simply needs to get out of the way.