Business
Opinion: Why aren’t your cannabis customers paying you?
California cannabis companies’ recent attempts to recoup substantial debts have many in the industry asking: How did this credit crisis happen, and how can my company prevent similar issues?
The problem with extending credit is that unless you evaluate the credit worthiness of a company you are extending credit to, you may be taking an unreasonable risk.
One issue is that most cannabis companies that are extending credit do not have a formal “accounts receivable” or “credit” department to help manage the order-to-cash process.
These facilities exist to ensure that customers are held to their credit terms and that payments are collected in a timely manner.
Not having these controls is probably the biggest mistake a cannabis company can make.
If you are extending credit, you must have a process in place to manage and ensure consistent cash flow to meet your company’s operating needs.
Here are four things that you need to consider if you want to extend credit and get paid for your products and services:
1. Hire an accounts receivable/credit manager
If you are going to extend credit, you need to hire a credit manager to oversee the credit-granting process, including developing and consistently applying the company’s credit policy, as well as managing and collecting the accounts receivable and the dispute-resolution process.
Periodically, the credit and collections manager will also review the credit status of existing customers and be responsible for evaluating the creditworthiness of potential customers.
The net result: increased sales, fewer bad debts, and a better bottom line.
2. Implement a credit application and credit-approval process
A credit application is a contract between buyer and seller. It provides basic information about your customer’s business and is one of the primary tools available for protecting your company and controlling credit risk.
Even customers who pay COD (cash on delivery) should fill out a credit application.
Securing a credit application does not guarantee payment, but it is one of the more significant documents to assist in making good credit decisions and collecting past-due accounts receivable and collection fees.
One of the biggest challenges to the cannabis market is making good credit decisions.
In the traditional B2B market, sellers have the luxury of access to credit data on both public and private companies through leading credit bureaus like Dun & Bradstreet, Experian and Creditsafe.
While none of these providers have cannabis-specific data, many are now gathering data about the cannabis market and have trade lines, UCC (Uniform Commercial Code), lawsuits and tax lien data available.
The No. 1 reason a small business fails is not paying taxes, and the leading credit bureaus all have monitoring and alert services to track this information.
3. Implement a collection strategy
In the traditional B2B trade credit world, if a customer has Net-30 payment terms, and they have not paid by day 31, they are considered past due and delinquent.
Mainstream companies have collection strategies detailing how to deal with customers that are past due and severely past due.
If you are extending Net-30 terms, when a customer is 90 days past due, they are considered seriously delinquent.
Given the volatile nature of California’s cannabis market, we believe a customer that is 60 days past due should be considered severely delinquent.
Here is a sample collection strategy to help manage a customer on credit terms:
- Five days before the invoice is due, an email is sent out with copies of the outstanding invoices.
- The day before the invoice is due, an email reminder is sent with a link to pay online as well as details about where to send a payment.
- On day 31, if the invoice is not paid, an email goes out letting the customer know that they are now past due.
- On day 35, if the invoice is not paid, a phone call is made to collect payment.
- On day 40, an email demand is sent and a phone call is made.
- On day 47, an email demand is sent and a phone call is made.
- On day 52, a “past due” email is sent
- On day 60, a “final demand” email is sent, letting the customer know that if payment is not received within 10 days, the account will be referred to a collection agency.
- On Day 70, if no payment has been received, the account is sent to a collection agency.
4. Have a formal policy that moves nonpaying customers to collection
In the B2B collection market, average gross recoveries are in the 35% to 40% range, and the average account is placed at around 150 days past due.
In the cannabis market, however, recoveries are in the 15% to 20% range, and the average collections placement is 285 days past due.
Why?
Most debt in the cannabis market is uncollectable because companies do not have good internal collection strategies and hold on to nonpaying customers far too long.
Many times, when a placement is that delinquent, the customer is already out of business or uncooperative, and the only recourse is litigation.
Here are five signs that your cannabis customer may need to be placed for collection:
- Your customer is over 60 days past due.
- Your customer is not returning your phone calls or emails.
- Your customer is purchasing erratically.
- Your customer has stopped buying.
- You receive negative trade information about the customer from other suppliers.
About 50% of payment issues are caused by companies not having the right process and people in place to manage order to cash.
To make sure your cannabis customers will pay you, implement the above four steps, and you should see a big difference in a short period of time.
Source: https://mjbizdaily.com/why-arent-your-cannabis-customers-paying-you/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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