California Cannabis Distribution Giant Herbl Faces Legal Battle as Industry Struggles with Financial Squeeze

LOS ANGELES -California-based cannabis distribution giant Herbl is embroiled in a legal dispute as it seeks to recover approximately $10 million in unpaid debts from retailers. The company, which fell into receivership in June, has become the center of a contentious struggle that reflects the larger financial challenges facing California’s cannabis industry.

In a significant development, court and investor documents reveal that Sunset Connect, one of Herbl’s former brand partners, has filed a lawsuit to recover a substantial six-figure debt from the beleaguered San Francisco pre-roll manufacturer. However, Herbl has refused to make the payment, further complicating the already tumultuous situation.

The collapse of Herbl has sent shockwaves through the cannabis industry in California, sparking concerns that more businesses in the sector could face a similar fate due to the prevailing cash crunch. As stakeholders, including retailers, brands, investors, creditors, and tax collectors at both the state and federal levels, scramble to recover their dues, the dire financial predicament of the once-prominent distribution company continues to worsen.

This unprecedented collapse of Herbl also serves as a litmus test for the broader U.S. cannabis industry. As a result of federal prohibition, cannabis companies find themselves unable to avail themselves of the conventional financial remedies typically available to struggling businesses, such as bankruptcy proceedings that facilitate debt restructuring and asset protection. In Herbl’s case, it is understood that investors and claimants will be prioritized over the brands seeking payment, as specified by the terms of the receivership.

Notably, Herbl’s investors include Roystone Capital Management based in New York City, alongside its primary lender, East West Bank, headquartered in Pasadena. However, the total amount owed by Herbl to its former brand partners remains uncertain, leaving observers skeptical about the chances of these cannabis companies recovering their dues.

Curiously, Herbl has yet to make any public statements regarding its collapse, and some of its brand partners claim that they were not directly informed of the company’s dire situation. Such lack of transparency has only fueled criticism of California’s mandatory distribution model and the existing state tax structure, which many argue are proving to be unworkable in practice. Particularly in a bear market, where creditors are seeking quick returns on their investments or recalling capital from financially strained businesses, the inherent flaws of the industry’s setup have come to the fore.

Legal records from Los Angeles and Orange counties reveal that Herbl has initiated legal action against at least ten retailers and delivery services to recover the outstanding debts. These debts range from $22,000, owed by Southern California-based General Verde Organics, to over $123,000 owed by Urban Buds, a delivery service in the Los Angeles area. However, neither Urban Buds nor General Verde could be reached for comment.

Herbl’s collection efforts began earlier this year, even before the company’s struggles became publicly known. Attorneys representing Herbl filed complaints seeking payment in July, shedding light on the company’s financial turmoil.