Cannabis Industry Takes on Deadbeat Dealers

The number of companies not paying debts is rising.

The cannabis industry is taking it upon itself to address deadbeat dealers within the industry – the people taking cannabis products to sell and then not paying for them.

From the smallest to some of the largest companies, many are having a hard time getting paid for delivered products. The most common payment term in retail is 30 days after the receipt of the product, however, that is being stretched to 60 and even 90 days in the cannabis industry.

Sometimes it’s never.

This is prompting the industry to take matters into its own hands.

Self-policing

“Some states and the brands within those states themselves, are actually forming their own coalitions together to start announcing and publicizing some of the companies that they should and should not do business with,” said Brett Gelfand, managing partner of Cannabiz Collects. “Cannabiz Collects is actually working on leveraging our own data as well to build an association to help our clients and members prevent further issues in the future, based on the data of the 3,500 claims that we’ve gotten submitted through our agency, so things are starting to pop up.”

Cannabiz Collects negotiates with businesses to get unpaid bills resolved. In turn, the company receives a portion of the recovered payment. Gelfand said one of the challenges towards recognizing the deadbeats is that most companies don’t report the accounts receivable data on a regular monthly basis, which makes it harder to recognize repeat offenders.

“Unfortunately, we’ve had the same experience as everyone else – waiting to get paid,” Jason Vegotsky, CEO of Petalfast said. “There’s actually a group now in California of the leading distributors that have come together. We share notes on a weekly basis with each other on who’s paying and who is not paying.”

That led to a behind-the-scenes “credit rating” used by distributors to identify the bad actors and an informal arrangement to not do business with the ones that weren’t paying.

He went on to say that eventually, as the bad actors realize they can’t get product to sell, it motivates them to pay up. He even noted that in California there was a behind-the-scenes credit rating with the distributors.

“It’s been nice for everybody to work together to solve this problem,” Vegotsky said.

Wholesale platform LeafLink is on the front lines of the issue as brands and producers display their wares for others to buy. The company said, “If a buyer is unable to complete payment on a transaction made through the LeafLink marketplace, their accounts are paused until the issue is resolved. Should the buyer or seller not fulfill their agreement, they are not able to use LeafLink offerings.”

LeafLink said it works to protect both the buyers and sellers and that both have to meet compliance and underwriting requirements.

No Credit in New York

The newest entrant into legalized adult-use cannabis, New York specifically stated that cannabis can’t be bought on credit: “No registered organization, licensee, or permittee, or other entity under the jurisdiction of the board, shall sell, deliver or give away, or cause, permit or procure to be sold, delivered or given away any cannabis, cannabis product, or medical cannabis on credit; except that a registered organization, licensee, or permittee may accept third-party credit cards for the sale of any cannabis.”

Since most credit cards can’t be used to purchase cannabis, it seems that New York will be a mostly cash-up-front market.

Some blame the cash crunch on businesses simply not being able to pay for inventory, while others think that cannabis operators just believe contract law is only a suggestion. Still others shrug and say “That’s cannabis for ya.”

Regardless of the reasons why, it looks as if patience has run thin, and the industry is doing what it can to protect itself from deadbeat dealers.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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