Is the cannabis recession here?

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

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

And the cannabis industry won’t be immune to it. In fact, we’re already seeing signs of a cannabis recession.

Is the cannabis recession here?

Is the cannabis recession here?AP Photo/Jeff Chiu

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

Venture capital funding is down 96% year-on-year. In both America and Canada, the banks were no help either.

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

But when 2022 ended without either, investors started looking elsewhere. Cannabis stocks are down 50% to 70% year over year.

We’ve already covered the Covid-inspired cannabis bubble. There, the industry experienced an artificial boom, fueled by the “end of the world” mentality and the fact that millions of people were under a form of “public health” house arrest.

So people turned to alcohol and other drugs, gambling, or adult content to deal with stress or just plain boredom. Luckily, many consumers have turned to benign, non-toxic recreational cannabis.

But that boom is over now. Along with the lack of reform in the United States, the cannabis recession is here. The investors break off, the income sinks.

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

The cannabis industry is financially strapped.

The payment

Is the cannabis recession here?

The Forbes study found that while most cannabis jobs pay poorly, there is enough to create massive economic value.

US medical and recreational pharmacies accounted for US$26.1 billion in legal sales. 31% of cannabis jobs are in agriculture, with retail stores accounting for 23%. The remaining work is ancillary work, including marketing, sales, legal, manufacturing and processing.

California saw the sharpest drop in employment — 13% year over year. That’s 12,600 fewer cannabis jobs than last year.

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

However, California’s robust “illegal” legacy market — estimated at 50% of the market — skews these numbers slightly. And due to a lack of legal stores in California and overproduction by legal growers, a price war has begun, causing wholesale cannabis prices to fall by 50%.

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

Oregon’s cannabis workforce is down 21%.

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

And the numbers reflect that. Missouri just got legalized and has hundreds of new retail outlets. The same is true in Michigan, where cannabis jobs and revenue are growing.

3,000 new jobs were also created in Florida, the nation’s largest market for medicinal cannabis.

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

Cannabis recession in Canada?

cannabis recession

Has Cannabis Recession Hit Canada’s Legal Industry? The Forbes study doesn’t cover the Canadian market, but a look at the latest headlines tells the story.

For example, Canadian pot stocks took a hit.

Tilray’s stock fell nearly 60% in 2022. That’s 93% down from its all-time high. Canopy is considered an industry leader, posting a roughly 70% decline year over year.

Here’s what Canopy’s third quarter of 2022 looked like:

  • $122 million drop in sales
  • $1.83 billion in operating expenses (up almost 1000%)
  • Minus $2 billion net income
  • Minus $5.38 earnings per share, less than a positive number.

Aurora Cannabis also saw a nearly 80% decline in 2022. If you had invested $1,000 in Aurora in 2013 and cashed out in 2018 right after legalization, you would have been $500,000 richer.

If you cash out now? You would have about $200.

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

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

Is the Cannabis Recession Here? It sure looks like it.

Will we see a cannabis recession in 2023?

Will we see a cannabis recession in 2023?

Because of the Federal Reserve in the US, the economy is headed for a recession. Interest rates are market-based prices for money itself. “Fixing” an interest rate as if it were public policy is price control.

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

The Fed has pushed rates down since the dot-com crash of the early millennium. This fueled the housing bubble, which the Fed reinflated as the “everything” bubble.

And then Covid happened and governments started handing out money as if the money itself mattered.

But you can’t eat slips of paper. It’s not money that matters, it’s purchasing power. And since the creation of the Federal Reserve, the purchasing power of the US dollar has declined year after year with no end in sight.

An economic depression may result in Covid-like demand for cannabis. But it remains to be seen how effectively this will boost America’s cannabis industry.

As for Canada, as with most of its economic problems, the problem stems from too much interference by federal and provincial governments.

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

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