Cannabis is a beacon of promise and growth, yet it's not without its set of challenges. With opportunities sprouting everywhere, a significant concern is emerging from the shadows—employees lighting up their tenures only to extinguish them sooner than expected. Delve deep with us as we explore the perplexing issue of employee turnover in the cannabis industry, its implications, and the strategies to not just cope but thrive amidst this challenge. As we proceed, we'll unravel myths, understand the reasons behind high turnover rates, and, most importantly, highlight tangible solutions for businesses. Let's clear the haze and get a panoramic view of what's truly at stake.
What is Employee Turnover & How is it Measured?
What exactly is employee turnover? Employee turnover refers to the rate at which workers leave an organization and are replaced by new employees. It can be either voluntary such as resignation or retirement, or it can be involuntary such as dismissal or layoffs. In 2018, the U.S. Bureau of Labor Statistics noted that the majority of turnovers were voluntary, with employees choosing to leave their jobs.
As we talk about employee turnover, imagine it like this. It's the rate at which employees leave a company and are then replaced by new hires. Think of it like a revolving door at a busy office building. People come in and stay for a while, but then many leave thus making space for new faces. In the world of business, especially in industries like cannabis, this can be a pretty big deal because it costs time, money, and resources to find and train someone new every time someone else decides to walk out of that metaphorical revolving door. So, in essence, high turnover is not the best sign for business performance. We’ll discuss the reasons behind it in a bit but first let’s understand how exactly employee turnover rate is measured.
Employee turnover rate is typically calculated as a percentage. The formula is as simple as the number of employee departures, divided by the number of average employees, multiplied by one hundred.
For example, if a company has an average of one hundred employees and fifteen employees leave during the year, the turnover rate is fifteen percent, because the equation would pan out to be fifteen divided by one hundred, times one hundred.
One reason the discussion of employee turnover rates fall on deaf ears with cannabis business executive teams is that they look to the profit and loss statement to get their information and the cost of employee turnover isn’t usually given its own line item. However, the truth is that high employee turnover comes with high costs to the business.
Cost of High Employee Turnover
It's estimated that the cost of replacing an employee can range from one-half to two times the employee's annual salary. These costs come from recruitment, training, lost productivity, and more. Let's imagine you're running a cozy cannabis consumption lounge. Now, you've noticed that your staff is changing faster than the seasons. This isn't just a minor inconvenience. There are real costs and impacts associated with this constant change.
Every time an employee exits, it activates a chain reaction of costs. According to the Society for Human Resource Management (SHRM), the average cost per hire in the U.S. is around $4,129, with an average time of 42 days to fill a given position.
Training Costs
When an employee resigns, their knowledge and expertise don’t get immediately transferred to their replacement. The Center for American Progress has noted that businesses spend about one-fifth of an employee’s annual salary on training replacements.
Orientation & Onboarding
Before diving into job-specific roles, new hires often undergo orientation which familiarizes them with company culture, policies, and basic operations. This might involve HR hours, materials, and sometimes even dedicated sessions or seminars.
Job-specific Training
Teaching a new hire the nuances of their specific job role, like making a specialized cannabis-infused latte, requires training time from experienced staff or trainers. Inefficient training can also lead to mistakes that might cost the business in terms of reputation or wasted materials.
Lost Productivity
It takes time for new hires to reach the productivity level of their predecessors. According to the Institute for Research on Labor and Employment (IRLE) at the University of California, Berkeley, it can take up to two years for a new employee to reach the productivity of an experienced worker.
Adjustment Period
A new employee might take more time to complete tasks initially, be more prone to errors, or require assistance, leading to slowed operations.
Mentoring Time
Existing employees might need to spend time guiding new hires, leading them to divert time from their primary roles, further reducing productivity.
Lowered Morale
Constant turnover can significantly dampen the morale of remaining employees. A survey by Robert Half indicated that 22% of workers claimed their morale was somewhat or very negatively affected when a colleague resigned.
Perceived Instability
High turnover rates might give an impression of job instability or organizational problems, leading existing employees to reconsider their own tenure with the company.
Relationship Disruptions
Employees form professional bonds and collaborate on projects. When a member leaves, it disrupts workflows and requires adjustments. Losing colleagues regularly can erode the sense of community within the workplace.
Recruitment Costs
Think about it. Every time someone leaves, you're spending money on ads to attract new talent, spending money on the hours it takes managers to conduct interviews, and maybe even taking on the expense of background checks and agent card fees.
Advertising and Promotion
Placing job ads on premier job boards, running recruitment marketing campaigns, and promoting open positions on social media platforms often come with significant costs. Some high-demand job roles might even require premium listings which are pricier.
Managerial Time
For every vacant position, managers or HR personnel will spend several hours sifting through resumes, conducting initial screenings, setting up interviews, and making follow-ups. Considering a manager's average hourly wage, this translates to a considerable expense for the company.
Background Checks and Agent Card Fees
Pre-employment background checks ensure that new hires meet company standards, but they aren't free. The average employment background check can cost anywhere from $30 to $80 per check. For industries with strict regulations, like the cannabis industry, the costs might be on the higher side, not to mention additional fees for obtaining licenses or agent cards specific to the sector.
Lost Knowledge
When an employee departs, they don’t just leave an empty chair behind. They also take with them the accumulated knowledge, experience, and relationships built over time, which are often difficult to quantify but crucial for the business.
Tacit Knowledge
Unlike explicit knowledge that's documented and easily passed on, tacit knowledge refers to the unwritten, unspoken, and hidden vast storehouse of knowledge held by practically every human being, based on his or her emotions, experiences, insights, intuition, observations, and internalized information. This is the knowledge that employees often take with them when they leave. According to a study by the Harvard Business Review, about 42% of the skills and expertise required for a role is tacit knowledge, which can't be easily transferred or documented.
Customer Relationships
Some employees, especially those in sales or customer service roles, develop deep relationships with clients. These relationships might be the reason why some customers prefer doing business with the company. When these employees leave, the company might lose these customers. Research by Bain & Company indicates that a 5% increase in customer retention can lead to more than a 25% increase in profit, underscoring the importance of maintaining these relationships.
Vendor Relations
Just as employees might have close ties with customers, they may also have built strong relationships with suppliers or vendors. These relationships might be the reason a business gets faster deliveries, better deals, or priority treatment. When this link in the chain is broken, operational costs can rise.
Burnout
Overloading remaining staff with extra responsibilities without additional compensation can be detrimental to their well-being and the company's overall health.
Increased Workload
A survey by Deloitte found that 77% of respondents have experienced burnout in their current job, and often, an increased workload contributes to this feeling. When employees have to pick up tasks left behind by departing colleagues, it adds to their daily pressures.
Resentment and Reduced Engagement
Continuously overburdening staff can lead to resentment, especially if they feel their efforts aren’t being recognized or rewarded. Gallup's research found that only 15% of employees worldwide are engaged in their jobs. Disengagement can rise when employees feel undervalued or overworked.
Physical and Mental Health Concerns
Chronic workplace stress can lead to serious physical and mental health issues. According to the American Institute of Stress, about 83% of US workers suffer from work-related stress, costing U.S. businesses up to $300 billion a year.
Further Turnover
Ironically, overworking the remaining staff after one employee’s departure can lead to more departures. The Workplace Institute in 2019 found that 46% of respondents cited burnout as their reason for seeking a new job.
Reasons for High Turnover Rates in Cannabis
To even try to start reducing costs by reducing turnover we first must understand why the turnover rates are what they are in the cannabis industry. Reports have been suggesting that for some roles, especially those frontline jobs like budtenders, we're looking at a turnover rate soaring up to sixty percent, or even higher. Yep, you heard that right. That is pretty high, even when you compare it to other fast-paced industries such as retail. Generally, retail businesses experience an average turnover rate of 60%-70%. Thus, dispensaries align closely with this broader retail benchmark. However, the elevated turnover in retail is often influenced by seasonal employment, young high school aged employees, and temporary roles. Those factors aren’t prevalent in cannabis dispensaries.
To grasp the reasons for the high turnover rate in cannabis despite the absence of some common turnover triggers, we must unfold the intricacies of the cannabis industry and its workforce dynamics. There are some unique challenges that are making the staff churn spin a little faster.
Regulatory Challenges
This industry feels like it's riding a roller coaster sometimes. Laws and regulations are constantly changing, and depending on where you are, today's legal might be tomorrow's gray area. This unpredictability can make folks nervous about their job security. Imagine going to work every day not knowing if a new regulation might make your position obsolete, or completely change the rules of your role. It may not be the fact that the regulations change so much as it is how leadership handles communicating the impact of those regulatory changes to the employees. Most leaders aren’t skilled at managing change so every time a regulatory change occurs it feels like a sudden shock wave rather than a well thought out operational adjustment. Listen to episode seventeen to learn more about how to manage change in cannabis business.
Rapid Industry Growth
You know when a kid gets home after trick or treating on Halloween and binge eats all their candy only to wind up sick to their stomach and moody from their sugar crash? That’s kind of like how the cannabis industry is growing. Companies are sometimes so eager to fill roles that they might rush hiring decisions without ensuring a good fit. If the cannabis industry was a chess game, and your company was a player, this unrefined approach to hiring would be like making moves in the game without looking at where the pieces were headed. It’s not a great strategy for winning the game.
Safety Concerns
Working with cannabis isn’t just about rolling joints and having a good time. Employees might be dealing with potent chemicals, potentially dangerous tools and equipment, or given the cash-centric nature of the business they might face higher threats of crime. There are genuine risks involved, and if these risks aren’t taken seriously by an employer, it can cause employees to flee due to feeling unsafe.
Wages
Especially for those just starting out in the cannabis world, the pay might not always be green enough, if you catch my drift. When other industries are offering more competitive salaries, it can be tempting for workers to jump ship. Dispensaries have the benefit of being able to allow employees to accept tips which can be seen as an added benefit to employees without being an additional expense to the business.
How to Increase Employee Commitment
Navigating the cannabis industry presents its own set of exhilarating peaks and challenging valleys, making it a rollercoaster journey for its workforce. As the industry continues to evolve, it's anticipated that these rough patches will even out, promising a steadier experience for all stakeholders. So, how can cannabis firms ensure they're capitalizing on the benefits of consistent employee retention during these tumultuous times? A Gallup poll suggests that 75% of the reasons workers leave could be circumvented by their employers. This underscores the pivotal role management plays in keeping talent. Let's delve into strategies to ensure your top talent remains committed for the long run.
75% of the reasons employees leave could be circumvented by employers.
Compensation
It's an inescapable fact: competitive remuneration does drive employee fidelity. Budget constraints are real, particularly in the heavily-taxed cannabis landscape. However, to be an industry leader, premium talent is non-negotiable. To retain this caliber of employee, it's imperative to ensure your compensation packages are reflective of their worth. Otherwise, you're metaphorically attempting to secure premium cannabis with a limited budget—reaping mediocre results. Salary packages that are on par with, or surpass industry standards can certainly deter staff from exploring opportunities elsewhere.
Recruitment Approach
Consider another challenge: is your business overstaffing due to management's inability to align talent with suitable roles? Subpar training can exacerbate this issue, leading to a hiring spree just to meet qualitative standards. The remedy? Streamlining your recruitment strategies. By doing so, not only do you maintain payroll efficiency, but you also mitigate high turnover, consequently reducing associated costs. This refined approach guarantees that your workforce remains top-tier, while also steering clear of bulk hiring.
Development Opportunities
Speaking of top-tier, let's transition to another instrumental facet of employee retention: professional development. Investing in your employees' professional trajectory isn’t only beneficial for them; it reciprocates with dividends for the company. Visualize being an entry-level barista, now presented with an opportunity to evolve into a master coffee roaster—this exemplifies the trajectory you should offer. Enabling team members to continually learn and ascend the professional ladder not only elevates morale but fosters loyalty, as they envision a progressive future within the firm.
According to LinkedIn's 2018 Workforce Learning Report, 94% of employees would stay at a company longer if it invested in their career development.
Inclusivity
Now, while it should be a given, fostering a safe and inclusive environment still eludes some organizations. No one wishes to endure a toxic atmosphere, whether in personal relationships or the workplace. Prioritizing both physical and emotional security is paramount. While physical safety can be achieved through adherence to regulations like OSHA, mental well-being demands adept leadership, an inclusive atmosphere promoting open dialogue, and a positive organizational culture.
Benefits
Another allure? Benefits and added perks. Comprehensive health coverage, bonuses, added leave, and potential product discounts, all enhance an employee’s package. They're akin to the cherry atop your sundae—while not the primary attraction, they unquestionably enhance the overall appeal.
According to the Society for Human Resource Management (SHRM) in their 2019 Employee Benefits survey, 92% of employees stated that benefits are important to their overall job satisfaction.
Communication
Concluding on a crucial note, the significance of open communication cannot be emphasized enough. Employees should find comfort in approaching superiors, be it about concerns, innovative ideas, or simply to discuss the latest product offerings. Trust in leadership’s transparency concerning performance feedback or transformative decisions is paramount. Clear, consistent communication fosters a work atmosphere characterized by trust and positivity.
Conclusion
In the rapidly evolving landscape of the cannabis industry, retaining top talent is paramount for long-term success. Addressing employee turnover requires a strategic blend of competitive compensation, professional development, a safe work environment, rewarding benefits, and open communication. By placing your employees at the forefront of your business strategy, you not only foster a thriving workplace but also position your brand for continued growth and leadership in the market. If you're looking for tailored solutions to enhance your retention strategies, Cann Strategy is here to help. Partner with us, and let's cultivate a brighter future for your cannabis business.