California Coalition Seeking Safeguards Around Cannabis Bought on Credit

In response to a growing number of cannabis licensees declining to pay their debts, several cannabis companies in California recently came together to form the Financial Stability for California Cannabis (FSCC) and declared their support for Assembly Bill 766 (1). Included in the FSCC are Kiva Sales & Service, Lowell Farms, Nabis, Sunderstorm, CannaCraft, Calyx Peak, Glass House Group, and The Parent Company (2). The bill is also called “The Cannabis Credit Protection Act,” and would require a cannabis licensee to pay for goods and services no later than 15 days after the final date on the invoice, otherwise the seller must file a report with the Department of Cannabis Control (DCC) and the buyer would be prohibited from making future purchases on credit (1).

Most US banks do not service cannabis companies due to its status as a federally illegal drug, which means that most cannabis sales, even in the state of California where cannabis is legal, are made on credit (3). Sales from illegal operations, which do not pay taxes, account for over 60% of all cannabis sales in the state (1).

"Collections and outstanding debt related to unpaid invoices are key challenges facing cannabis operators of all types across the state, from cultivators to manufacturers, vertical brands to wholesalers, and everyone in between," said Vince Ning, co-founder and co-CEO of Nabis (3).

Some argue that the bill could create opportunities for abuse. “The person making the report has to give the DCC almost no information in order to make the report,” explained cannabis attorney Griffen Thorne (1). “There is no hearing. There does not even seem to be an opportunity to contest the report. The second a report is made, the other side loses its rights to buy goods on credit–presumably even under preexisting contractual arrangements with third parties. This seems like an obvious due process concern and ripe for abuse.”

On May 18, AB 766 was heard in the Assembly Appropriations Committee on May 18, but did not pass (1).

References

1. Finberg, A.; Wright, R.; Menkes, S. Desperate California cannabis vendors seek credit protection https://cannabisindustryjournal.com/news_article/desperate-california-cannabis-vendors-seek-credit-protection/ (accessed Jun 7, 2023).
2. New California Cannabis Coalition aims to tackle credit crisis https://mjbizdaily.com/new-california-cannabis-coalition-aims-to-tackle-credit-crisis/ (accessed Jun 7, 2023).
3. California’s cannabis firms band together to address credit woes https://www.reuters.com/business/californias-cannabis-firms-band-together-address-credit-woes-2023-05-16/ (accessed Jun 7, 2023).