What’s Happening in CA Cannabis - A Brand’s Point of View. Part 1.

I haven’t posted in quite some time. The California #cannabisindustry has been in such turmoil for the last 18 months, and even more so over the last 6 months, that I’ve just been taking it all in and observing the impact that overtaxation, overregulation, lack of banking, lack of access to capital, competition from the illicit market and the overall economic environment has had on our industry. But what you often don’t hear is a brand’s point of view, and I have THOUGHTS, so I’m going to share them in a series of posts addressing different topics. Please feel free to comment if there’s a topic you’re interested in and think I should cover. I also want to acknowledge that my brand has been better positioned than most - we’ve had investment and resources, so I can’t even imagine what other brands have been going through.?

Topic 1: We aren’t getting paid

Well, this isn’t news to anyone that works in cannabis. Having worked at 3 brands, it’s pretty well known that this is a chronic issue for our industry. The difference now is that the lack of payments is causing even the big guys to go out of business. Case in point - the collapse of HERBL.?Ok, I know that retailers that aren't paying isn't the only reason that HERBL shuttered, but it was a big part of it.

Brands and distributors often serve as interest free lenders to retailers. Brands grant terms to retailers (I often hear, if you don’t give me terms, I’m not ordering), and those retailers buy and sell the product, and then go past due on open balances - a brand may not even get paid for 90, 120 days or more. Yet we still have to function as a business - I still have to pay my employees, pay the distributor, pay my bills, etc, while my cash flow is tied up in AR. This used to be sustainable for one key reason - investment. (Obviously we aren’t getting any business loans). For years, many brands were able to maintain cash flow through investment, but once investment dried up about 18 months ago, this became impossible.?

Another problem, the biggest companies are also the ones with the biggest open balances. Why? Because they can. Even if my largest customer has the highest open balance, I’m still going to continue to sell to them, because I need to stay in business. And I’ll get paid…eventually…probably.

What can brands do??

For the first time, I’m actually pushing back - I have to, because I can’t run a business this way. And surprisingly, I’m seeing other brands start to do the same. I’ve seen many of these suggestions come up, but here are some ideas:

A centralized system for credit reporting

As is very common in cannabis, data and information is highly fragmented. Various distributors have their own information on which retailers are paying, which ones are chronically overdue, which ones they refuse to ship to, which ones are on COD, etc. But this information is not centralized or shared between distributors. I’m lucky enough to work with NABIS , and they provide this information to me, so I can make a more informed decision on who to grant terms to, sell to, etc. But other brands don’t have access to this information if they use a different distributor. I often see brands asking, which retailers aren’t paying? Who shouldn’t I sell to? But as brands, we are afraid to call out retailers publicly, due to potential backlash. What would solve this? A centralized reporting system, basically Dun & Bradstreet for the cannabis world.?

Regulation

Ok, I’m not a big advocate for even more regulation, but there is a law I wish we had that the alcohol industry has, which is the 30-day credit law found in the ABC Act at Business and Professions Section 25509 which essentially means, “The California credit law requires that suppliers charge specific yet varying amounts of interest to their customers based on how late their customers are with their payments, and enforce cash on or before delivery terms to any customers who have past due accounts. The federal law just requires COD or CBD terms to retail accounts in arrears.” You can read more about it here .?

NABIS is also advocating for regulatory changes, and you can find updates on their work here .?

Small things I’m doing:?

These are the small steps that I’m taking to try to ensure that we can get paid. Yes, we lose orders. Yes, retailers hate it. But ultimately, if we’re not going to be paid for an order, then why bother shipping it??

• Retailers with a past due balance cannot reorder. This is a newer policy for us, but at this point, I have so many unpaid invoices, and invoices that will never be paid, that we no longer allow stores with open balances to order.?
• If you’ve gone past due on an invoice, you no longer get terms.
• Retailers with past new balances do not get: more free promo units, demos, Snoop to appear at their store (yes, someone asked me for that). We’ll support you, but you also have to support us.?
• If you go 90 days past due on an invoice, it goes straight to collections. Sure, I lose some money on this, but it’s better than never getting paid. And too many times I’ve been lied to by retailers who tell me that the payment has been scheduled, my distributor hasn’t picked up payment, they need to push back the payment date, etc.?

What other practices have you found to be effective?