California Cannabis Debt Bubble on Verge of Bursting

Wave of business failures is on the way if the debt bubble explodes.

A slow but steady years-long trend of licensed marijuana companies in California not paying all of their bills might be nearing its climax, industry insiders warned, and a wave of business failures is on the way if the debt bubble explodes.

The lack of overall profitability for several years running – along with myriad other financial challenges –  has led many businesses to shuffle payments around, delay payments to vendors, or not to pay at all, industry insiders said.

The amount of overall debt carried by legal operators is hard to pin down, but one industry leader pegged it at more than $600 million.

“It’s probably ballooning quickly now, because people have no dollars left, and there isn’t a light at the end of the tunnel, and no one’s investing,” said Jerred Kiloh, the owner of The Higher Path, a licensed retailer in Los Angeles. Kiloh also serves as president of the United Cannabis Business Association (UCBA), one of the largest cannabis trade organizations in the state.

Bubble about to pop?

Kiloh said his $600 million estimate comes from “interviewing distributors, interviewing other attorneys who are owed retainer money and legal fees, and now seeing what businesses are coming out with their tax bills.”

Kiloh said he knows that many of the larger distributors in California are carrying upwards of $25 million on average.

“And of that, $14 million-$15 million is over 60 days old, which is considered bad debt,” Kiloh said.

A unanimous sentiment up and down the supply chain is the debt bubble represents an existential threat to a lot of the industry – and many companies won’t survive much longer.

“It’s going to be a mass extinction event here shortly,” said Matt Yamashita, the founder and president of Grizzly Peak, an indoor grower and distributor in San Francisco bay area.

“In the next 12 months, I think half the retailers are going to be in business. I think 80% of the people in business will be gone. It’s inevitable. The bubble is going to burst,” said Yamashita, who this year has teamed up with the state Department of Tax and Fee Administration (CDTFA) to try to collect on some of the millions in excise tax debts his company is owed by retailers.

The nonpayment trend has become so common that it’s even seeped into SEC reports filed by some companies that trade on the Nasdaq and New York Stock Exchange.

In August,’s parent company, WM Technology, reported in an earnings call that roughly 500 retailers – mostly California delivery operators – were either removed from the dispensary finder website or put on payment plans for falling behind on advertising bills. WM Technology trades on the Nasdaq under the ticker symbol MAPS.

And last month, San Diego-based Innovative Industrial Properties, a national cannabis leasing firm, reported that two of its tenants in southern California were behind on their rent for a combined $5.7 million. Innovative Industrial trades on the NYSE under the ticker symbol IIPR.

The situation might have even inspired New York regulators, who have been collaborating with stakeholders from California on new industry regulations, to propose an apparent national first for the Empire State’s upcoming recreational market: Any retailer that purchases cannabis products on credit from distributors and fails to pay after 90 days shall be reported to the state.

The New York Office of Cannabis Management did not respond to a request for comment, but California industry sources said it makes sense New York would try to learn from California’s mistakes.

“I can’t take credit for that suggestion, but it definitely sounds like something that came from a California person,” said Amber Senter, an Oakland-based cannabis businesswoman who’s worked with New York regulators on crafting rules.

Senter, the founder of Supernova Women and owner of lifestyle brand Makr House, said she’s already seeing some California companies fail, but declined to identify any by name.

“I see it happening already, folks going out of business, especially distributors, because they can’t collect from the retailers,” Senter said.

She also said she likes the idea of the New York rule on reporting companies delinquent in payments, but questioned whether the state would put any teeth behind the mandate, or if it would only prove symbolic.

What’s going on?

“What’s happening is the bottom half of the industry, or even two-thirds right now, is struggling to sell their product,” said retailer Grant Palmer, who owns Santa Cruz shop CannaCruz.

Palmer explained that the issue stems from a longstanding tradition of growers supplying retailers without demanding payment upon delivery, which gave rise to a trend of farmers and distributors accepting payment terms of up to a month or more after-the-fact.

And the lack of contracts that lay out specific payment terms before delivery in these cases is likely a significant contributor to the issue.

Many marijuana retailers have struggled to sell a lot of the product they’ve stocked – in large part due to competition from the cheaper illicit market – and so wound up stiffing distributors, who then weren’t able to pay growers or manufacturers.

And the problem has been compounding, month after month, Palmer and others said.

“People are then like, I’ll just extend my terms (of payment for inventory), from 30 days to 90 days … but then you’re in this downward spiral, and you’re never going to be able to pay those debts back,” Palmer explained.

In addition, there’s little in the way of recourse that many operators are left with, Palmer said, particularly when faced with a choice of who to pay or not pay.

Often, Palmer said, distributors in particular “can’t pay somebody, so they have to pick, and an anonymous grower is an easy pick. The penalty for not paying your taxes is very severe, but the penalty for not paying a grower is nonexistent.”

“They may get a pissed off vendor, but that’s about it,” Palmer said. “There’s just lack of consequence, and dispensaries and distros are in bad shape.”

Palmer added that though the entire industry has been in financial distress since 2018, when new statewide regulations kicked in, the downward spiral seems to have kicked into high gear.

“It’s never been this bad,” he said. “There’s enough desperate growers and vendors out there who feel like they have no choice but to take 90-day terms that they’re never going to get paid on.”

Grizzly Peak’s Yamashita said he’s been actively pursuing retailers in small claims court over bills for cannabis products that have gone unpaid, with varying levels of success. He said he’s “in constant litigation.”

“Everybody is chasing all the retailers,” Yamashita said. “We distribute to more than 400 accounts. There are only about 100 good accounts that pay on time.

“Case in point, I’ve cut out over 150 accounts in the last 90 days for nonpayment,” he said. “I can’t continue to front loans on more product, because it’s killing my cash flow.”

What’s going to happen?

When distributors can’t collect, growers and manufacturers don’t get paid, said Genine Coleman, the executive director of the Origins Council, which represents small cannabis farmers up and down the state.

That’s hitting small farms the hardest, with many waiting six months or longer to be paid for their harvests. That means many are already on the brink of financial ruin, she said.

“I would expect that 50% or more of all licensed operators statewide relative to right now will be done in the next 6-8 months. And it’s already begun,” Coleman said. “It just seems like the California cannabis industry is actively collapsing.”

To Coleman’s point, Long Beach-based Glass House Brands reported in its third quarter earnings call that between July 1 and Oct. 31, “The number of active outdoor cultivation licenses dropped by 624 (in California), representing a 15% drop in total, and a 44% drop of the total license licenses up for renewal during that period.”

Kiloh said he sees a domino effect of failures coming, because he expects some companies carrying heavy outstanding debts will fail, those bills will go unpaid, and the debtors will have to eat the cost, which will cause them to then exit the industry in turn.

“It’s who doesn’t get paid that’s hard to predict … We’re all close to insolvency right now,” Kiloh said, including The Higher Path in that reference. “In the last four to six months, I’ve found that I cannot sustain my business, unless I completely demolish my whole business type and move to a commodity-driven, low-priced kind of (model).”

When the bubble bursts, Kiloh said, it’ll be felt not only by plant-touching companies such as retailers and farmers, but also ancillary firms and professionals, such as lawyers, advertisers, and so on.

“Every single person who’s invested in California is going to feel it, even ancillary businesses. There are going to be a lot of legal firms that are going to be left with debt on the table,” Kiloh said. “It hits everyone. Every venture capitalist. Every landlord.”

John Schroyer


  • Jason b

    November 15, 2022 at 10:59 pm

    100% true. Long over due to have it published with this level of clarity. The regs have absolutely killed my once thriving business. Quite possibly the worst rollout of regs in any of the states. I would sue I I could find a law firm to take the case. But the regulators are protected regardless of how much harm they cause. I have lost 7 years of blood, sweat, and tears behind what should be a criminal level of incompetence around regulating the longest standing already-legal California cannabis industry. What recourse will there be for all of us that poured our entire life savings and years of our lives into this? Everyone involved in putting forth the regulations and managing enforcement should resign. Today. They have failed in such spectacular fashion. Free up some of the budgetary excesses to give back what the regs have stolen from all of us and start over from scratch.


    • Same Store

      November 16, 2022 at 12:22 am

      Exact same story as Jason b.

      15 years of fighting, arrests, seizures, employing hundreds of people, and now watching it all implode, for everyone, at every level.

      The worst laws ever written. A nanny-state approach to a RELATIVELY harmless herb. Sugar is worse. Alcohol is worse. Opiods are worse. Excessive SITTING takes more off your life than cannabis. If California took Prop 215, and changed one word from medical to “anyone”, we’d have an amazing, thriving inventory. We don’t need Track and Trace, we don’t need regulators. We just need true legality, like fruits and vegetables, or intoxicants like caffeine and wine. They regulated it like it was Plutonium.


      • Gary

        November 16, 2022 at 6:30 pm

        I helped draft 215 and thanks for recognizing its success.


  • Abe Abdulla

    November 16, 2022 at 12:10 am

    Reality is here and this article addresses part of the problem
    The biggest problem retailers have is the 25% tax which does not allow you to deduct any expenses except the product cost
    Do Retailers are paying 25% taxes on money they are not profiting


    • Mary Jane

      November 16, 2022 at 10:29 pm

      Sone of the taxation is double or even triple. Take for example the heinous IRS code 280E … We cannot write off our accountant, so we must pay taxes on the money that we pay her. She receives a 1099 because she is an independent. Now she turns in that 1099 when she pays her taxes – and is taxed on the money we had to pay tax on. Who made up these stupid rules? This was designed for us to all fail. Everyone is going back to the traditional market. Legal markets have failed.


    • Bill

      December 3, 2022 at 8:38 am

      I believe the biggest problem in California is that many if not most Californians are in oversaturated communities that cost a fortune, all of whom are in this desperate race for money, running their business with cut throat mentality money money money. Meanwhile state officials were greedy as well and sold way too many licenses to cultivate without any throttle, causing wholesale flower to drop below $10/Kg. If you weren’t vertic out of the gate, a certain doom lingers. Add in the rapes.. er, uh.. I mean rates they were getting on these loans at 16-20ish% for real estate and construction, 18-25% for equipment and 2-3 year terms. May has well have called it the mad grab for other people’s land, while brokers were charging 5% sometimes with diligence fees to 20K, issue nonbinding term sheets and later switch it or charge you 1% if you dont sign. This is why groups like Indranet Partners is kicking tail. No fee agreements, working strictly on commissions and tips for financing, no non circumvent agreements, its almost like these people earn your money and want you to succeed.. Wow, amazing concept, so simple. Had California been launched under similar service provisioning those debt payments would be cut in half.


  • Jane

    November 16, 2022 at 11:17 am

    And yet half the industry will react with; “cool, now all I need to do is hold on until half my competition dies”. The definition of insanity…


  • Judi Nelson

    November 27, 2022 at 12:12 pm

    I think that $600 million number is way too low. I personally know several small farmers in the emerald triangle who are each owed a half million or more by distributors and retail, and just about everyone I know, myself included, is owed at least $50k by someone. That is amongst just my own circle of friends who I am close enough with that they share their personal financial information.


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