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Nonpayment is No. 1 reason marijuana firms fail: Q&A with collection expert Brett Gelfand
author profile pictureBy Kate Lavin, Editorial Director
August 8, 2024
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Brett Gelfand (Photo courtesy of Cannabiz Collects)
Michigan isn’t just competing with California for regulated recreational marijuana sales.
Operators in Michigan’s regulated adult-use market also rival those in California for most unpaid invoices, according to Brett Gelfand, managing partner at St. Petersburg, Florida-based Cannabiz Collects and founder of the Cannabiz Credit Association.
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“Michigan is becoming one of the worst we’re seeing,” Gelfand said.
“Oregon and Colorado used to be pretty significant states for us when it came to collection activity.
“So many of these companies got weeded out, and to be honest, we don’t get a lot of volume anymore in Colorado and Oregon.
“But in some new markets, like Michigan, it’s becoming a bigger problem.”
How big of a problem?
Delinquent payments in the regulated U.S. cannabis industry are likely to surpass $4 billion in 2024, according to Whitney Economics, an Oregon-headquartered cannabis data and research company.
MJBizDaily spoke with Gelfand about how plant-touching companies can implement best practices for accounts receivable and break the cycle of debt.
What is the main factor leading cannabis companies to not pay on invoices?
Banking and capital access.
If you’re not able to get a credit card, and you’re not able to get regular access to capital like a non-cannabis business … you’re going to try to get trade credit versus operating capital.
All these cannabis companies – without any formal training on what a bank would do – are now acting like banks.
The minute you give somebody net-15- or net-30-day terms, you’re acting like a bank.
What would a bank do if someone asks them for a loan?
They’re going to get your credit profile; they’re probably going to have a lien; they’re probably going to have a personal guarantee.
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They’re going to have all this recourse in case you don’t pay – and in cannabis, it’s a free-for-all.
Cannabis companies feel like they have to extend credit to get the sale, and if not, customers are going to find somebody else.
So, they’re basically getting bullied into giving out credit terms because there have been no guardrails or transparency around who the bad actors are in the cannabis industry.
Are certain sectors of the industry suffering more from the nonpayment epidemic?
Retailers have been the most notorious for nonpayment, and it starts a cycle.
What happens is, the retailers owe money to the producers and the brands.
Then, (those companies) will be very late on paying their testing-lab vendors.
Some larger ancillary companies are tighter on the way they do things.
Grow-supply companies, lighting companies, they’ve been around the block.
They are not just going to freely extend credit.
Besides cash on delivery, what best practices do you recommend for accounts receivable?
No. 1, you have to have someone who is responsible for collecting cash.
Have a policy and procedure; write it down.
Then, make sure you have a way to analyze a company if you’re extending credit.
Have an onboarding agreement with your customer that a lawyer reviews and that has default language if they don’t pay you.
If you’re giving a significant amount of credit, where your customer really needs it, get a personal guarantee.
That’s the best thing that you can do to protect yourself.
With a lot of these retail chains going under, vendors are lucky to get a penny at the end of the day.
Why aren’t cannabis operators reporting default accounts to collections?
A lot of my clients have outstanding accounts that they haven’t submitted to collections because they’re nervous about their reputation; they don’t want to be known as a jerk in the industry for sending somebody to collections.
This needs to change.
People need to realize that if you’re working with a company, and you made a deal and they’re not abiding by that deal, you’re not the bad guy.
If you’re not paying your bills on time, you’re the culprit.
You’re the one that made a deal and didn’t stand by it.
And if you do that, then other people are going to lose their homes.
People are going to lose their businesses because of your behavior.
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What is something you wish cannabis operators knew?
There is so much risk with Facebook groups and WhatsApp groups (dedicated to exposing delinquent companies).
They’re basically nice people who got burned and want to help the community.
But there are serious laws around antitrust, and if there was a sophisticated debtor that owed money and was on this list and saw people saying, “Do not sell to this person,” you could get in a lot of trouble.
So, it’s really important for the industry to be aware that, yes, they’re trying to do the right thing, but you have to be careful.
If you’re going to share information, you have to do it in a regulated way.
This interview has been edited for length and clarity.
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