Desperate California Cannabis Vendors Seek Credit Protection

Cannabis companies representing 45% of California’s cannabis sales are pushing a bill that will crack down on non-paying customers. Well known operators, including Kiva, Lowell Farms, Nabis and Sunderstorm, recently formed Financial Stability for California Cannabis (FSCC) and moved to support Assembly Bill 766.”

The bill, nicknamed “The Cannabis Credit Protection Act,” would require a cannabis licensee to pay for goods and services sold or transferred by another licensee no later than 15 days following the final date set forth in the invoice. If full payment is not received by that date, the seller would be required to report this to the Department of Cannabis Control (DCC), which in turn would notify the delinquent buyer and begin disciplinary proceedings. The buyer would be prohibited from purchasing any other cannabis products on credit until the delinquent invoice was paid. In addition, the DCC would be empowered to issue a penalty (unspecified), taking into account “the frequency and gravity of the licensee’s [past] failure to pay outstanding invoices”.

In a letter of support for AB 766, the FSCC stated, “This culture of nonpayment that has emerged in California’s cannabis market leaves businesses across the entire industry and supply chain – as well as ancillary businesses that support legal cannabis operators – with outstanding balances and unpaid invoices sometimes totaling hundreds of thousands of dollars…This ballooning debt bubble in the cannabis industry will only continue to grow without proper oversight, putting the entirety of the state’s supply chain at risk of collapse and impacting state revenue decline even further.”

Opponents of the bill acknowledge the problem of non-payment in the industry, but feel AB 766 is too heavy handed and is “ripe for abuse.” In a blog post for the international legal firm Harris Bricken, cannabis attorney Griffen Thorne writes, “[L]icensees who are reported would be legally prohibited from buying goods or services on credit from other licensees until they pay the invoices for which they were reported in full … The person making the report has to give the DCC almost no information in order to make the report. 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.”

The number and amounts of unpaid cannabis product invoices have ballooned over time and have driven California cannabis vendors to take such extreme measures. Collections and outstanding receivables are a symptom of an industry struggling under heavy taxes and competition from illegal operations that pay no taxes whatsoever, and which now account for over 60% of all cannabis sales within the state.

In order to ascertain the current status of AB 766, 420CPA reached out to Assemblymember Phil Ting (D-San Francisco), co-sponsor of the bill along with FSCC, the Cannabis Distribution Association, California Cannabis Industry Association and the California Cannabis Manufacturers Association. We corresponded with Tania Dikho, Ting’s Legislative Director. Ms. Dikho informed us that the bill was heard in the Assembly Appropriations Committee on May 18, but it was not passed.

“It’s a 2-year bill meaning we can’t act on it until this legislative year is over, so the bill will not have another hearing [and we] can’t make any changes to it until next year,” explained Ms. Dikho.

The 2-year status is a tenuous one. The bill must be approved by the Assembly and make its way to the Senate between early January 2024 and January 31, 2024 or it may no longer be acted upon and will die a legislative death.

Businesses that would like to voice their opinion for or against AB 766 should contact their state legislative representatives.

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