Marijuana Business Magazine January 2020

Marijuana Business Magazine | January 2020 82 L ayoffs at large cannabis companies made headlines in the second half of 2019, with both plant-touching and ancillary marijuana businesses in the United States and Canada announcing that hundreds of workers had lost their jobs. (See story on page 50 about how layoffs are expected to continue this year.) The job cuts ranged from California companies such as multistate operator MedMen and online advertiser Weedmaps to Canadian producers such as Hexo Corp. and CannTrust. (See accompanying chart on page 84.) The circumstances for each business varied, and industry experts agreed it’s not a red-flag warning for any larger, systemic trouble. But experts did say there are several steps businesses can take to avoid having to tell employees that they’re being let go. 1 CRUNCH THE NUMBERS, AND THEN CRUNCH THEM AGAIN. The first and perhaps most obvious step, which often gets overlooked amid the rush to win business licenses and raise capital in the fast-moving cannabis industry, is to take a careful look at your company’s financial situation. “First, they need to take a very sober look at the fundamentals of the business and really understand where they are in terms of cash flow—and understand what’s realistic for them,” California attorney Joe Rogoway said when asked what cannabis businesses could do to avoid having to cut staff. “If they see that there are going to be some constraints on capital for one reason or another, plan for that early,” Rogoway said. That’s going to include carefully weighing: • How much revenue can realistically be expected. • Potential operational costs. • Immediate or long-term hurdles to profitability. • How much employees will cost in the grand scheme. “Fancy financial strategies, this is not the time for that. This is the time to focus on profitability. I would shed everything that’s not immediately profitable,” said Gavin Kogan, the CEO of California-based vertically integrated operator Grupo Flor, which laid off 30 employees in 2019 after an investment deal fell through. 2 DON’T RELY TOO MUCH ON INVESTMENT CAPITAL. Grupo Flor’s experience reinforces this advice from Kara Bradford, co-founder of Seattle-based Viridian Staffing: Don’t hire based on an expected influx of investment money. Bradford said capital falling through is one of the reasons she’s seen more marijuana industry layoffs in 2019, in part because a lot of investors got skittish over the course of the year as publicly traded companies on the Canadian markets took a major downturn. “One of the questions I never used to ask—but now I do—is, ‘Do you currently have the funds available to have this per- son come on and pay their salary, or are you waiting on some infusion of cash to help pay for this person?’” Bradford said. For Grupo Flor, because investment capital didn’t materialize, the company refocused on revenue streams that were immediately profitable. By contrast, the company hit pause on longer-term projects, including a cannabis production license in Colombia that still needs infrastructure build-out. “You can’t build out a big grow that’s going to be profitable in the middle of 2021 if you’re trying to survive. You have to focus on something that’s immediate- ly profitable,” Grupo Flor’s Kogan said. “And you can’t be focusing on interna- tional growth if you’re having a hard time paying your bills at home.” 3 ESTABLISH A FINANCIAL BUFFER FOR TOUGH TIMES. Nic Easley, the CEO of Colorado-based 3C Consulting, agreed with the impor- tance of monitoring cash flow when hiring but added that businesses need to plan for the unexpected, including the possibility of tough financial times that may necessitate staff reductions. Most companies haven’t done a good enough job of giving themselves a financial buffer, he said. “Raise and have more money. Not for going public, but plan your burn rate out longer,” Easley said. “Every single U.S. and Canadian cannabis businesses laid off hundreds of workers during the second half of 2019, with companies blaming slow market rollouts in places such as California and a dearth of outside funding. The job cuts are expected to continue into 2020. Experts suggest businesses take the following steps to avoid laying off employees: • Pore over your company’s financial situation, including how much revenue can realistically be expected and total operational costs. • Avoid relying too much on outside capital because such funding can fall through. • Create a financial buffer amounting to three to six months of capital to cover the cost of operations, including staff salaries. • Cross-train employees in multiple job functions to avoid layoffs and make your workforce more flexible. • Talk with creditors if your company gets in financial hot water, being up front and honest in the process. Gavin Kogan Courtesy Photo