In the ever-evolving landscape of the cannabis industry, a new and formidable adversary is emerging, threatening to disrupt even the most established players: delinquent payments. According to a recent nationwide survey conducted by Whitney Economics, a leading authority on cannabis economics, data, and research, delinquent payments represent nothing short of an existential threat to cannabis businesses across the United States, irrespective of their size or market position.
The Pervasiveness of the Threat
Preliminary findings from the survey have unveiled a stark reality. Delinquent payments are impacting the entire cannabis supply chain, sending shockwaves from growers and manufacturers to ancillary businesses. While retailers are not immune, the brunt of the impact tends to be borne by those crucial elements that form the backbone of the industry.
The survey results indicate that an alarming 59% of respondents believe delinquent payments have a more significant impact on their businesses than even Section 280E, a federal tax policy notorious for restricting cannabis businesses from enjoying standard deductions available to other industries.
Financial and Operational Implications
Delinquent payments are not merely financial inconveniences; they have severe implications for the economic health and operational capabilities of cannabis businesses. A staggering 43% of respondents reveal that these late payments are hindering their ability to service existing debts, creating a snowball effect that could lead to financial instability.
Furthermore, 32% of respondents report that delinquent payments are impeding their capacity to meet state or federal tax obligations. This dual financial strain is creating a perfect storm, threatening the very foundations on which cannabis operators build their businesses.
Magnitude of the Problem
Some respondents have painted a grim picture, revealing that delinquent accounts receivable extend beyond two months of revenue, reaching into the millions of dollars. For these businesses, the challenge is not merely about financial inconvenience but surviving a situation where operational cash flow is constrained to ten months in a year due to delinquencies.
Operational Disruptions and Layoffs
The impacts are not confined to balance sheets alone. Delinquent payments are causing operational disruptions, leading multiple companies to make the painful decision to lay off employees. The human toll of this financial strain is a stark reminder of the real-world consequences faced by cannabis businesses.
California as a Bellwether
California, often seen as a bellwether for the cannabis industry, provides a sobering case study. Herbl, once a major cannabis distributor, halted operations, citing approximately $10 million owed by retailers. This created a domino effect, pushing producers and manufacturers to the brink of insolvency, caught in a web of unpaid invoices and financial instability.
Regulatory Controls and Economic Struggles
Adding to the industry’s woes, state legislators and regulators are tightening controls precisely at a time when cannabis licensees are grappling with economic challenges. This combination of regulatory pressures and cash flow problems poses a potentially catastrophic scenario for businesses trying to navigate these turbulent waters.
Lack of Financial Tools and Protections:
Compounding the severity of the issue is the fact that cannabis businesses lack access to traditional financial tools, such as bridge loans, to weather the storm of delinquent accounts receivable. Additionally, the federal illegality of cannabis deprives these businesses of bankruptcy protections, leaving them vulnerable to individual wealth destruction in the event of failure.
Call for Urgent Policy Intervention:
Recognizing the gravity of the situation, Beau Whitney, Founder, and Chief Economist at Whitney Economics, advocates for immediate state and federal policy intervention. The potential for widespread business failures and labor displacement underscores the urgency of addressing the delinquent payment crisis before irreparable damage is done to the cannabis industry.
More to Come
As the cannabis industry stands at a crossroads, the threat of delinquent payments looms large, necessitating swift and decisive action. Stakeholders, including businesses and policymakers, must collaborate to develop solutions that ensure the sustained growth and success of an industry that holds immense promise but is currently teetering on the brink of financial instability. Whitney Economics continues to collect survey responses, promising a more comprehensive analysis that will further shed light on the depth of this critical issue facing the cannabis ecosystem.
