California Cannabis Industry Tackles Unpaid Invoices with Credit Association

LOS ANGELES– In an effort to address the issue of unpaid invoices and bring financial stability to the supply chain, a group of California distributors and brands, representing over half of the state’s wholesale B2B cannabis market, has engaged the services of the Credit Management Association (CMA). The CMA, a nonprofit organization based in suburban Los Angeles, will evaluate accounts receivables and other relevant documents from more than a dozen distributors and brands. Subsequently, the association plans to distribute a “do not sell list” to each participant, containing the names of 25 California retailers notorious for delayed payments and outstanding debts. Termed the “red” list, it includes retailers and delivery providers with overdue payments exceeding $25,000 and being 90 days or more late.

Based on preliminary estimates, the combined outstanding debts of the companies on the “do not sell” list amount to at least $625,000. This figure suggests that retailers and delivery providers across the state, even excluding those on the list, likely owe more than $1 million in unpaid invoices. The pervasive problem of unpaid bills in the cannabis market stems from various factors, including the high taxes, regulatory burdens, and competition from the illicit market that retailers and delivery operators face. Many of these businesses, facing financial constraints, struggle to meet payment obligations and dig themselves out of debt.

To address these challenges and bring financial structure to the industry’s supply chain, the credit association is actively seeking new members, facilitating group meetings, and consolidating data sets to generate business credit reports. The initial report is slated for release to members within a few weeks, as confirmed by individuals who spoke with MJBizDaily. The accountability effort spearheaded by Nabis, a prominent California cannabis distributor handling approximately $400 million worth of products annually, aims to foster stability and financial discipline within the industry.

Brands, distributors, and manufacturers throughout California have been grappling with the issue of unpaid invoices for years, intensifying since mid-2022 due to industry stocks plummeting and capital drying up. This problem has disproportionately impacted social equity licensees and brands, particularly those owned by Black and Latino entrepreneurs, who often lack the necessary capital reserves and resources. As an example, Presidential Cannabis, a member of the credit association and a leading brand for blunts and pre-rolls in California, has encountered significant difficulties with clients accumulating unpaid invoices of up to $180,000 and going out of business after ordering $120,000 worth of products. Consequently, Presidential Cannabis, like many other brands, has revised its payment policies to demand timely settlements or face discontinued services. The financial strain resulting from unpaid invoices has hampered the growth and revenue of numerous brands, undermining their ability to invest and expand.

Sunderstorm, a San Francisco Bay Area company known for manufacturing the Kanha gummy brand, has resorted to employing collection agencies as a last resort, albeit with mixed success. These agencies typically charge a 20% fee, leading to losses for businesses seeking debt resolution. Sunderstorm did achieve some success by filing a lawsuit against a delivery operator, recovering $15,000 in overdue payments, albeit after accounting for collection fees. However, the option of small claims filings, which have a maximum limit of $5,000, is not viable for cannabis businesses grappling with outstanding bills that often exceed this threshold. As a result, Sunderstorm allocates a substantial monthly sum of $30,000 to bad-debt reserves to cover the cost of uncollected receivables. This situation highlights the interconnectedness of the cannabis industry, as delayed payments between retailers, distributors, brands, and other stakeholders propagate financial instability throughout the entire supply chain.