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California Cannabis Industry a “Debt Bubble Waiting to Burst”

California Cannabis Industry a “Debt Bubble Waiting to Burst”

Stakeholders warn there’s a “mass extinction event” in the making as the home of US cannabis faces up to years of mounting debt.

Alex Halperin, Founder Weedweek

23/01/25, 14:00

Weedweek reports on the crisis facing the Californian cannabis industry.

Facing A Debt Crisis

No one denies that the California cannabiz faces a debt crisis. As insiders described recently to Green Market Report, years of unpaid bills and taxes are building to a “mass extinction event,” for the state industry.

Making the problem worse, distributors offer credit (“terms”) to retailers, which need to be extended when the retailers don’t pay. If distrus don’t get paid they can’t pay brands and growers, some of whom provided them with product on credit.

The result, according to the California Cannabis Industry Association’s 2023 legislative platform is “a significant cannabis debt bubble at serious risk of bursting.”

Retailers receive much of the blame. They’re the ones selling products to consumers, the thinking goes. It must be their mismanagement and poor budgeting that prevents them from paying their suppliers.

  • The CCIA platform points in this general direction, calling for “strong credit law protections to restrict the flow of goods to licensees who are in default.”

Conversations with insiders suggest the problem is spread throughout the supply chain. One can also blame high taxes, obtuse regulations and a fundamentally unworkable market structure.

This debt crisis has been years in the making. The latest ripple is the new tax law which took effect January 1. It shifted how the state collects the excise tax. Until a few weeks ago, retailers remitted the tax money to distrus who paid the tax to the state.

As described by CCIA “many licensed retailers delay payment on products, including their associated excise tax liability” far beyond the terms offered to them. This has forced distrus “to collectively prepay tens of millions” in tax they were unable to collect.

Now retailers must pay the taxes directly to the state, relieving some of the pressure on distrus. The question is what that will mean for retailers and the market at large.

Here are seven ways of looking at the crisis:

Distrus and brands

Dirk Voss, a board member at the California Cannabis Manufacturing Association and an executive at Zen Brands, stresses that only a “limited percentage” of retailers are the problem.

The dilemma for manufacturers is that they don’t get paid even as their product sells “The million dollar question,” he said, is how distrus can enforce the credit terms they’re offering retailers. Eventually he said distrus will stop offering terms to the “limited number” of non-paying dispensaries.

Arun Kurichety, COO and general counsel for Petalfast, which handles sales and marketing for more than 20 brands, said he believed between 30% and 50% of their retail accounts are backed up.

  • This week SoCal Petalfast rep Chasen Landry posted on LinkedIn: “Shout out to all the cannabis      stores that are 180+ days past due…and make me feel like an asshole for asking about it.”

In this impossible climate, I heard repeatedly that some distrus are advocating for a cash on delivery (COD) law similar to those that exist for alcohol federally and in many states. The laws, many of which owe to conditions following alcohol prohibition, require COD or limit the credit distrus can extend to retailers. Violations can lead to criminal penalties and loss of license for both distrus and retailers.

  • Kurichety didn’t endorse the idea saying his hope would be a less drastic solution.

  • Three major distrus, Kiva Sales and Service, Herbl and Nabis (whichhandles logistics for Petalfast brands) didn’t respond to requests for comment.

Jerred Kiloh, owner of The Higher Path dispensary in Sherman Oaks and president of the retailer group United Cannabis Business Association, said such a law would do little to solve the problem.

Distrus and brands don’t have anywhere else to sell products, he said. It would result in more empty shelves and force distrus to make more deliveries.

No one forces distrus to offer more credit to a shop that owes them $150,000. But if they don’t their product sits in a warehouse and gets old.


Growers are in a similar predicament. Genine Coleman, executive director of the Origins Council, which represents small-scale cultivators, said 83% of its members are owed money by other operators. Of those 58% don’t expect to collect.

“COD is one option we’re looking at,” she wrote. Enabling farmers to sell directly to consumers might help as well. “It’s also important to us to ensure that any proposals seek to address the problem holistically across the whole supply chain.”


In the fall, Kiloh, who owns The Higher Path, surveyed 87 California dispensaries and found that the average shop doing $7M a year in revenue owed about $500,000 in accounts receivable debt, and would characterize 40% of it as bad debt. Shops in smaller cities with less competition tended to be in better shape.

  • Kiloh also surveyed 20 distrus who account for a bit      more than a third of the state market. On average they’re owed $25M in AR      debt, about $16M of which is aging debt.

  • In November Kiloh estimated the total debt carried by      legal operators at $600M. There’s little reason to think it’s shrunk since      then.

The situation deteriorated in August, he said. Normally shops can make money in the summer. A year after the harvest, supply is running dry.

This year there was a huge influx of light dep product into the legal and illegal markets, he said. Pandemic money dried up and people were going out more. In LA, social equity licensees were beginning to open and selling product at cost to build their customer bases. Kiloh came back from Burning Man and said, “What the fuck happened to my business?”

Revenue fell 23% in 30 days he said. The news hasn’t been encouraging since. January is always the slowest month of the year. But this is the worst month he’s ever had.

The pandemic had forced shops to bulk up their staff. Debt accumulated but it had also been good for sales, “a blip that made cannabis sustainable,” Kiloh said. Recently they have been cutting deeply.

The only way he’s been able to survive is to commoditize. He’s ended the compassion program for low income patients and other things that differentiated his business from the illegal market.

Retailers, Kiloh said, are forced to prioritize whatever has the highest cost of debt. Don’t pay your rent and you get shut down. Don’t pay a brand, they might sue and you can worry about it in a year.

The State

When the bubble bursts, who if anyone gets paid? Due to the industry’s lack of bankruptcy protections, a professionalized credit system and other factors, it is going to be messy.

Only one entity, Kiloh said, has a claim on being paid first: The state. When a company goes under, California can hold its officers personally liable for any taxes the company owes.

A Lender

This month industry lender Bespoke Financial sued Santa Barbara Co. delivery service In Da Cut. Last February, according to the complaint, Bespoke agreed to loan the defendant up to $400,000. Bespoke now says it’s owed at least $370,000 on aggregate principal of $273,000

  • The complaint lists 26 separate loans to cover payments owed to brands and distrus.

In less than a year, Bespoke is claiming combined interest, late fees and early termination fees totaling about 35% of the principal. “Certain of these charges continue to accrue daily.” ( Read the complaint. )

Bespoke issued a notice of default demanding access to In Da Cut’s books and records and a collateral inspection of the retailer’s business. In Da Cut didn’t provide a material response, the complaint says.  In Da Cut, didn’t respond to a request for comment.

(Legal research supported by Unicourt.)

A Collector

After struggling to collect payments while running a vertically integrated Colorado company, Brett Gelfand co-founded debt collection service Cannabiz Collects in 2017. His co-founder is his father, Ross Gelfand, a retired Atlanta collections attorney.

Like other debt collectors, Collects applies pressure with emails, calls and texts. If that doesn’t shake the tree, it has a network of lawyers who sue the debtors. Clients only pay when the debt is repaid. Brett said that the company has processed about $60M in claims and collected “60%-75% of quality claims where the debtors are still operating and debt is collectable.”

  • Standard fee is 25%, but older and more complex cases cost more.

“People don’t think about trade credit as a loan, but it’s a loan,” Brett said. “Debtors are going out of business so fast, without a personal guarantee, [owners] can just run away from their obligations.“

  • That’s what happens when clients hesitate to call him, he said. “Trying to be the nice guy leaves you S-O-L.”

The company has assembled a database of 4,000 debtors and now sees about half its business coming from California. It’s bread and butter clients are licensees trying to collect from retailersm, but they work with other clients as well.

Brett said the company has worked with California brands including Rove, which wasn’t available to comment by deadline and Jeeter, which declined to comment.

  • The agency is thinking about a subscription platform that would enable companies to access Collects’ data and communicate with each other.

“It’s becoming a massive problem,” Brett said. Retailers don’t have access to mainstream options for financing their operations. At the same time, brands and distrus largely don’t have credit departments to assess new retail partners.

Even the companies that do have credit departments don’t have access to the same information as mainstream businesses. Mainstream businesses can buy credit information from data services like Dun and Bradstreet and Equifax. But this kind of data is largely unavailable in weed. (Neither DnB nor Equifax responded to questions about their relationship to the cannabiz.)

  • Furthermore, most companies haven’t been around long      enough to have meaningful credit histories.

The new tax structure will help brands, Brett said. “It puts more responsibility on the retailers to manage their ordering process better.”

  • “People are so fed up right now,” he said.

An Outsider

When we spoke yesterday, Arizona Dispensaries Association executive director Ann Torrez described a wildly different business climate across the border. Though not required, COD is standard practice in Arizona’s smaller, close knit industry, Torrez said. Terms are “very new and respected.” Scofflaws get cut off.

The state doesn’t have distru licenses, and a shop not paying a manufacturer is like not paying a neighbor, she said. “I don’t know how you make a business work” with California’s credit situation.

  • Of Arizona’s 140 stores, MSOs like Trulieve and Curaleaf also have a significant presence. Their public status and national presence presumably requires a degree of rigor California businesses have struggled to impose on themselves. The MSOs can also borrow at rates far lower than In Da Cut      can.

Today Torrez called me back. She’d heard from two growers who hadn’t been paid for their bulk trim. “A lot of people are starting to miss those end of year payments,” she said


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