The cannabis industry takes on deadbeat traders

The cannabis industry takes it upon itself to reach out to the dead traders within the industry – the people who take cannabis products for sale and then don’t pay for them.

From the smallest to some of the largest companies, many find it difficult to get paid for products delivered. The most common payment term in retail is 30 days after receipt of the product, but this is extended to 60 and even 90 days in the cannabis industry.

Sometimes it’s never, which drives the industry to take matters into their own hands.

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self control

“Some states, and the brands within those states themselves, are actually forming their own coalitions to announce and publicize some of the companies they should and shouldn’t do business with,” said Brett Gelfand, managing partner of Cannabiz Collects. “Cannabiz Collects is actually working to also use our own data to build an association that will help our customers and members prevent further problems in the future, based on the data from the 3,500 claims we have filed through our agency, things like that are starting to show up.”

Cannabiz Collects is negotiating with companies to settle unpaid invoices. In return, the company receives part of the reclaimed payment. According to Gelfand, one of the challenges of detecting deadbeats is that most companies don’t regularly report accounts receivable data on a monthly basis, making it harder to spot repeat offenders.

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“Unfortunately, we’ve had the same experience as everyone else — we’re waiting to get paid,” said Petalfast CEO Jason Vegotsky. “In California there is now actually a group of the leading distributors that have come together. We exchange notes weekly about who pays and who doesn’t.”

This led to a behind-the-scenes “credit score” used by dealers to identify the bad actors and an informal agreement not to do business with those who didn’t pay.

He went on to say that the bad actors eventually realize they can’t get a product to sell and this motivates them to pay. He even found that there was a behind-the-scenes credit check at retailers in California.

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“It was nice for everyone to work together to solve this problem,” said Vegotsky.

Wholesale platform LeafLink is at the forefront of this issue as brands and manufacturers offer their wares for others to purchase. The company said: “If a buyer is unable to complete payment for a transaction made through the LeafLink marketplace, their accounts will be paused until the issue is resolved. If the buyer or seller fails to fulfill their agreement, they will not be able to take advantage of LeafLink’s offerings.”

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

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No credit in New York

New York, the latest entrant into the legalized adult use of cannabis, explicitly stated that cannabis cannot be purchased on credit: “No registered entity, licensee or permit holder, or other entity under the jurisdiction of the Board of Directors shall sell, supply or give cannabis to give away or sell, supply or give away cannabis products or medicinal cannabis on credit; except that a registered entity, licensee or permitee may accept third-party credit cards for the sale of cannabis.”

Since most credit cards cannot be used to purchase cannabis, it appears that New York will be a cash-dominated market.

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Some blame the liquidity crunch on companies simply not being able to pay for their inventory, while others believe cannabis operators only believe contract law is just a suggestion. Still others shrug and say, “This is cannabis for you.”

Regardless of the reasons, it looks like patience is running out and the industry is doing what it can to protect itself from ailing traders.