Why Cannabis jobs are going up in smoke?
For the first time in the history of the $26 billion legal pot market, employment declined last year, according to a new study exclusively obtained by Forbes. But analysts have high hopes for 2023.
Here’s a real buzzkill for the cannabis industry: After six years of double-digit job growth, employment dropped 2% in 2023.
According to a new report by the cannabis job platform Vangst, which was exclusively obtained by Forbes, there are currently 417,493 legal cannabis jobs in the United States, down from 428,059 in 2022. That 2% drop might not sound like a dramatic change, but as marijuana has become the country’s sixth-most valuable cash crop, the dip signals that the $26 billion industry is going through a “reset,” according to Karson Humiston, founder and CEO of the Denver-based Vangst.
“The industry has faced some headwinds, but the biggest challenge is the lack of capital,” says Humiston. “Venture funding in cannabis was down 96% year over year. Companies need capital to invest in their business and, a company’s number-one expense is labor.”
According to Humiston, almost every brand in the industry reduced its head count over the past year and several factor are to blame, including the end of the pandemic and botched legalization efforts.
Due to federal prohibition, companies have limited access to the American banking system. But for the first two years of the Biden Administration, investor enthusiasm ballooned as a Democrat-controlled Congress seemed poised to legalize marijuana at the federal level. But when 2022 ended without a vote on ending the country’s pot prohibition and the economy started to cool, public and private market investors put their money elsewhere.
Pot stocks saw their share prices drop 50% to 70% year over year. At the same time, while cannabis companies saw sales jump an average of 20% during the first two years of the pandemic—where lockdowns caused a dramatic rise in the vice economy, including cannabis, sports gambling and adult content subscribers—the Covid-induced revenue high fell back to earth last year.
“When the pandemic began to recede in 2022, cannabis demand returned to pre-pandemic levels,” the report notes. “That left many companies with staffing levels incompatible with the new return-to-normalcy environment.”
Humiston adds that as cannabis companies experienced a drop in revenues and investor sentiment cooled, companies had to start cutting jobs. “People are calling me and saying they have no money left,” says Humiston. “The number one reason companies tell me they’re laying people off isn't because they hired the wrong person, or of bad performance. It's because they do not have the capital and they can't raise the capital. This industry is cash-strapped.”
Even though most cannabis jobs are low-paying, combined they create a lot of economic value. Last year, recreational and medical marijuana dispensaries in the U.S. generated $26.1 billion in legal sales, up from $25.25 billion in 2021. Vangst estimates that the average industry salary pays $40,000 a year. With 10,566 fewer jobs this year, that means the country is losing an estimated $423 million in combined salaries in the cannabis industry alone.
Most jobs in the market, some 31%, are in farming, with most farm workers making $16-$20 an hour. Retail stores make up 23% of all cannabis jobs, with the largest role being a budtender making $17-$28 an hour. Seventeen percent of employment is ancillary, general counsel, controller, marketing, human resources, all of which pay between $55,000 a year to $225,000. Manufacturing jobs make up 17% while wholesale jobs are 7% and distribution is 2%.
The nation’s largest marijuana market, California, experienced the biggest drop in jobs—a 13% decrease since 2022. California now has 83,593 jobs, or 12,600 fewer than a year ago. The state generated $5.3 billion in legal sales last year, an 8.2% drop from 2021 and the first since the adult-use market launched in 2018. Overproduction and too few legal dispensaries have also resulted in a wholesale price war, with the price per pound of cannabis dropping by 50% between 2017 and the fall harvest in 2022, according to New Leaf Data Services, an institutional-grade wholesale price tracker.
The job market is down in other mature marijuana markets. Colorado, which launched legal recreational sales in 2014, saw a 28% drop in the number of jobs—10,481 workers—since the beginning of 2022. Meanwhile, cannabis jobs in Oregon dropped 21%. According to Vangst’s research, Colorado has particularly suffered as the surrounding states followed in its path and legalized marijuana. Colorado legal sales dropped from $2.2 billion in 2021 to $1.8 billion in 2022.
“As more states opened legal stores [Colorado] lost some of its allure as a cannabis tourism destination,” the report explains. “Consumers in nearby states—New Mexico, Arizona, Nevada, Oklahoma, Montana—no longer need to travel to experience the thrill of purchasing regulated cannabis.”
Despite the first decline in job growth since 2016, it's not all bad news. In states that have legalized recently, such as Missouri, and states that have opened hundreds of new dispensaries quickly, like Michigan, jobs and revenue are growing hand in hand. Missouri ranks first when it comes to the number of jobs added: 6,958, up from 2,775 in 2022, or a 350% increase. In 2022, both Michigan and Illinois leapfrogged Colorado in terms of cannabis sales. Michigan grew its legal sales by 36% over 2021 to $2.25 billion in sales while Illinois grew sales by 7%, hitting $1.9 billion. In Florida, the country’s largest medical marijuana market, pot sales jumped 23% in 2022 to reach $1.8 billion, just a smidge under Colorado. This jump in sales led to 3,000 new jobs.
With uncertainty around federal legalization, punitive federal taxes, onerous state regulations and not enough legal retail outlets, the legal industry’s potential has been hamstrung for the moment. In California, home to 40 million residents, there are only 1,200 dispensaries and the state’s legal industry captures only 50% of the demand, according to Vangst. This means California should have a $10 billion (annual sales) market with 130,000 jobs. With 83,000 jobs currently, that means the Golden State is missing out on $1.9 billion in annual salaries.
In New York, which is plagued by a thriving unregulated market, legal sales are only around $150 million a year. Vangst’s report say the market’s demand is around $5 billion, and should be supported by 65,000 jobs. Instead, the $150 million legal market only has 2,100 jobs. The lost economic potential is around $2.5 billion in annual salaries.
Emily Paxhia, cofounder of San Francisco-based cannabis investment firm Poseidon, which has $160 million in assets under management, says the lost economic potential in the industry is maddening. “This is the biggest wasted opportunity on American soil I can possibly think of,” says Paxhia. “Cannabis jobs, by nature, must stay here, you cannot export them to other countries, you can't even export them across state lines. This is an unbelievable missed opportunity by our country to drive domestic job growth.”
But there are high hopes for 2023. This year, cannabis sales are expected to grow by almost 12%, according to Whitney Economics, a cannabis-focused data firm. By 2024, Whitney forecasts 20% nationwide sales growth.
“Cannabis will be one of the largest consumer product sectors and hopefully the industry resets,” says Humiston. “A bunch of companies will get washed out and the companies that can make it through will do well. It will be like what happened through the dotcom bust; we just don't know who those winners will be.”
