What’s Happening in CA Cannabis - A Brand’s Point of View. Part 2.

Part 2: Terms

In my ongoing series of random thoughts on what’s going on with California cannabis, let’s talk about terms. Back in the day, yes, a whole 5 years ago (a lifetime in cannabis), terms didn’t exist. You paid cash on delivery for products. And if you didn’t have the cash, you didn’t get product. It was a simpler time.?

With legalization, things changed rapidly, which many of us wanted. We wanted to be a real, legitimate industry. Believe me, I don’t miss the days of carrying tens of thousands of dollars in my backpack to pay vendors. With investment and access to banking, also came about terms.?

First of all, terms are a good thing and totally normal in any other industry. But what has happened in cannabis is that they have gotten way out of hand - to the point that brands and businesses (HERBL) are going out of business - yes I realize that’s not the only reason why HERBL went out of business, but it played a role.?

I’ve heard in various discussions on why brands even grant terms, why not just demand that everything be COD, but if it were the case, we would lose most of our largest accounts. Let me give you an example of a frequent conversation that I have:?

Store: We’d love to carry your products.?

Brand: Oh fantastic. Here’s our pricing, minimum order, buyer samples and support that we’ll provide to you.?

Store: We also want terms.?

Brand: Well, you’re a new customer, and we don’t know if you’re going to pay us.?

Store: If you don’t give us terms, we won’t order.?

(Big Stores: Net 30 day terms are a minimum requirement to work with us)

Brand: Well okay, but we’re a small brand, you’ll pay us, right?

Store: Sure. No problem.?

Brand: Hi store, your invoice is now…30, 60, 90 days past due. You’ve been ignoring us, we can’t reach anyone in your accounting department, and that payment you said you scheduled for pick up 10 days ago never arrived. Because you have 10 locations, I have 10 past due invoices for you. I’ve already had to pay my distributor for the delivery fee. Can you just please pay us the $1200 you owe us? I still have to pay my employees and the operating costs of running a business.?

I’ve worked in operations, purchasing and vendor management for most of my career. Here is how a conversation would go outside of cannabis:

Brand: Hi, I’m a new customer, and we’ve chosen you as our packaging vendor.?

Vendor: Great. First order is on credit card or ACH.?

Brand: But can I have terms??

Vendor: No, not until you have an established payment history, and we can verify you’ll pay us. Here, fill out this credit application - you’ll need to list 3 references, your banking details, and we’ll look you up on the Dun and Bradstreet database.

Brand: But we’re a cannabis company, we’re not listed on the D&B database.?

Vendor: Ok, then talk to us in 3-6 months and we’ll see if you qualify for terms then.

Basically, the request for terms has become standard practice for almost all retailers in cannabis, and they're become to easy to obtain, particularly for businesses that should never qualify for terms. And I think brands are finally pushing back after not being able to collect on many invoices. But I’d love to hear what the rest of you are doing to mitigate this situation.?#cannabisindustry #cannabis #california