A contribution by Karson Humiston on the state of the cannabis industry facing recession and economic uncertainty.
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Facing Recession: Just Another Bump in the Road
The legal cannabis industry is no stranger to adversity and uncertainty. From the still-present challenges of federal prohibition to maneuvering an ever-shifting regulatory and compliance landscape, the heavily taxed, cash-strapped sector has developed blueprints that allow it to operate lean and mean. And that’s not even considering the COVID-19 pandemic — technically, the first recession that the fledgling industry ever faced. As financial experts warn of another potential recession, hard lessons learned in a short time by the scrappy cannabis industry can offer more established business sectors tips on successfully surviving a downturn like the one we may be facing today.
Trust is one of the essential tools needed to navigate an economic downturn. As discussions of facing recession intensify, anxiety becomes more prevalent in the workplace. During the 2008 recession, 60% of millennials reportedly felt “anxious about [their] job security.” This year, nearly 80% of U.S. workers are “worried” about losing their jobs as a recession looms. To address these fears, company leaders must remain as transparent as possible regarding their strategic approach. Managers and team leaders should also set clear expectations for employees as they work through economic uncertainty. Setting goals and opening clear communication channels will pave the way for success during these challenging times.
Facing Recession, Navigating Uncertainty
Companies looking to successfully navigate periods of economic uncertainty must also nurture their existing business relationships. Similar to maintaining effective relationships between company leadership and the workforce, keeping an open line of communication is essential. As companies look to cut costs, it’s important to ensure that your partners value the relationship that has already been built. Establishing regular meetings and remaining as transparent as possible will help achieve this goal. The second key to maintaining existing business relationships is remaining empathetic and approachable. As illustrated in the study above, anxiety rises in the workplace as the economy twists and turns. To engender trust and genuine camaraderie during these times, approach conversations with a level of emotional intelligence and care.
Protecting cash flow is another key component of a company’s success during periods of economic strife. Customers are a company’s lifeline during an economic downturn and it is imperative that companies maintain positive relationships with their consumers. Businesses can build strong relationships with their existing customers by diversifying their product offerings. If companies veer away from their existing customer base, the price of attracting new consumers will prove to be more stressful and expensive in the long run.
Protect Cash, Cut Costs
As illustrated above, it is important to protect cash flow and eliminate unnecessary costs as we’re facing recession. Unfortunately, businesses often cut their public relations and marketing departments in the process. However, cutting these operations may not lead to improved performance. Following the recession of the 1980s, a McGraw-Hill study found that “companies that kept advertising through the dark days had sales that were up 275 percent from 1980, the base year, while those that had cut their budgets were up only 19 percent.”
More recently, a 2008 study from the Harvard Business Review found that companies that cut marketing costs “faster and deeper than rivals did not necessarily flourish.” Instead of eliminating marketing efforts, companies should focus on advertising to existing clientele. Studies have shown that it is anywhere from five to 25 times more cost-effective to market to existing customers than attempting to pull in new customers while facing recession.
Also, marketing campaigns should remain positive and consistent. Consistent marketing messages should reflect the state of the economy and can be delivered through several mediums, including social media, blog posts, emails, etc. Due to restrictive laws in legal states and federal prohibition, the cannabis industry has always had to be creative and savvy regarding marketing. But during the pandemic, their customers knew that they were there for them.
Economic uncertainty is just another reality for the cannabis industry in the best of times, and other businesses are beginning to feel the pinch. When the COVID-19 pandemic struck the U.S. in 2020, companies had to undergo various changes and overcome a number of challenges to reach this point in time. The challenges that economists warn of now are different, but companies are better prepared to deal with them because of what has occurred over the last two years. By maintaining strong relationships with employees, nurturing existing business relationships, maximizing cash flow and marketing effectively, companies will emerge from this economic downturn stronger, and with a bigger sense of mission than they had going into it.
Hard lessons learned by the cannabis industry can inform every sector, allowing them to come out the other side of whatever it is that’s coming our way leaner, meaner and more prepared than ever for future challenges.