Dodging Downsizing

Job cuts

Experts suggest businesses take steps to avoid laying off employees.

Six tips to avoid having to lay off employees

Layoffs 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.

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.

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 person 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 immediately profitable,” Grupo Flor’s Kogan said. “And you can’t be focusing on international 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 importance 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 operational company I know—and most ancillary companies—don’t raise enough capital or have enough runway to get to cash-flow positive.

“Have another three to six months (of capital set aside)” to cover the cost of operations, including staff salaries, Easley suggested.

 

4 Cross-train employees.

Another cost-cutting step that could save jobs down the line is to train staffers to do more than a single job, said Avis Bulbulyan, the CEO of California-based Siva Enterprises.

“As the employer, cross-train a lot of employees in multiple job functions. So, as an employee, if you outgrow one job, here’s another opportunity,” Bulbulyan said. “One employee can make up two positions.”

That advice is especially applicable to unskilled positions, but it also fits higher-level jobs, depending on the company and the roles that need filling, Bulbulyan said. For instance, he said, an unskilled budtender at a retail shop could also be trained to serve as a purchasing manager, or unskilled trimmers at a grow also could be taught to mix nutrients or handle clones.

Not only could such overlap save a company from having to impose layoffs, it also makes the workforce more flexible.

 

 5 Look for third-party contractors.

Yet another option is to avoid hiring for some positions to begin with, Rogoway said. Employing contractors is often cheaper than having to hire a full-time staffer for, say, marketing or accounting or another area that could have some crossover with other industries. That allows a company to save on expenses such as health insurance and other employee benefits.

But the reverse can also be true, depending on the price of contractors, Rogoway noted.

“Employees are expensive. If you have a vendor (whose services) you can just get billed for, that can be a savings,” Rogoway said. “Conversely, take a look at outside vendors and see if that’s the most efficient use of resources.”

Outside vendors can account for plenty of services that also may be provided in-house, such as accounting, marketing, public relations and even security.

 

 6 Talk with creditors if You Get in Financial Hot Water.

A last-ditch strategy that may or may not work for companies in dire financial straits is to try to work out a deal with creditors, which may be a bitter pill to swallow but could give businesses enough leeway to keep all their staff
on board.

And that means being honest and up front with creditors, Grupo Flor’s Kogan said.

“Communicate with people that you owe money to. Even if that means (saying), ‘I can’t pay you,’ communicate that. Because what (frustrates) creditors more than anything is a lack of communication,” Kogan said.

Because of the lack of traditional banking and business loans for those in the cannabis industry, Kogan warned that the only real options for borrowing may be “predatory” lenders that often charge 20% interest or more.

“If you borrow money, it’s going to be so cripplingly expensive and painful to your shareholders that it’s a very difficult decision to make,” Kogan said. “Some companies will have no choice but to do that.”