Unchecked credit is choking the cannabis supply chain

(This is a contributed guest column.To be considered as an MJBizDaily guest columnist, please submit your request here.) Brett Gelfand (Courtesy photo)The cannabis industry is sitting on a ticking time bomb – one that’s been quietly growing for years while most operators look the other way.

Accounts receivable (AR) are ballooning to unsustainable levels, and beyond a few informal “blacklisted” groups on social media, no one is talking about the financial chokehold this is putting on the supply chain.Right now, more than $2.24 billion in AR is circulating through the industry, based on data collected by CannaBiz Credit Association, a cannabis-specific credit reporting platform.

The problem has metastasized over the past four years, and while the bulk of outstanding AR sits mainly in three states, the data makes one thing clear: As markets mature and wholesale prices crash, delinquent payments surge. ADVERTISEMENT Today, California leads the crisis with $777 million in reported AR, followed by Michigan ($231 million) and Massachusetts ($144 million).

Some states are seeing more than 30% of all receivables past due.That’s a catastrophic rate in any industry, but it’s even more dangerous in one where liquidity already is razor thin.

At the core of this issue is the industry’s shift from cash-on-delivery transactions – standard in the legacy market – to offering payment terms without conducting proper credit checks.In trying to move toward practices common in mainstream industries, cannabis businesses took one step forward but forgot the other.

The result? A broken system that allows businesses – sometimes in bad faith but often simply due to financial strain – to take on inventory they can’t afford with little consequence for slow-paying or outright defaulting.Unpredictable cash flow for cannabis operators When a company extends terms without proper vetting, it’s essentially issuing ...