#KahliBuds #MMJ #CBD #THC

The U.S. cannabis industry is grappling with a staggering $3.8 billion in delinquent payments, which poses an existential threat to many businesses in the sector, according to a new report from Whitney Economics.

The report, released Tuesday, revealed that the total amount of overdue payments equates to approximately 1.6 months of revenue for the entire industry. Many cannabis companies find themselves operating for an entire year with only about 10 months of actual cash flow, making it challenging to stay afloat.

“If payments are delayed for one business, it can create a ripple effect throughout the supply chain, especially a supply chain that already operates on razor thin margins,” the firm said.

Ripple effect

According to the study, cannabis cultivation companies are the most severely impacted by late payments. Large corporations and multistate operators account for a significant portion, $1.4 billion, of the delinquent payments.

The research also points out that retail dispensaries wield considerable power and are more likely to be late payers, while cultivators and small businesses bear the brunt of the consequences when payments are delayed.

“This is disproportionately impacting smaller and minority-owned businesses and in many cases is resulting in forced market consolidation and individual wealth destruction,” the report said.

Whitney said that delinquencies greater than 45 days account for 56.3% of the total delinquencies.

According to respondent data, wholesale and distribution companies are stuck in the middle, getting squeezed by late payments on both sides. They often don’t pay growers until retailers pay them. Slim margins and expensive quick loans make this juggling act even harder.

“Our lingering Accounts Payable is a direct result of our open Accounts Receivable,” one distributor said. “We pay obscene interest rates on capital to fund our customers’ inventory and expansion.”

Some distributors work on consignment, meaning they only pay suppliers after the product sells. That motivates them to delay payments as long as possible to avoid tying up their cash in inventory.

Meanwhile, processors are trying to collect from retailers and distributors.

“Receivables are probably the biggest challenge we face,” a respondent said. “The combination of few retailers having lines of credit to buy inventory coupled with the high cost of labor for on-site cash pickups (especially when payment isn’t ready) makes for a ‘perfect storm’ in the receivable’s world.”

High costs

Cannabis businesses often also face very high interest rates for loans, usually between 25% and 33%. To save money and avoid borrowing more at these steep rates, they’re incentivized to postpone paying what they owe to other companies for as long as possible.

However, the practice contributes to the broader issue plaguing the industry: Companies choose their own financial self-preservation by holding onto cash longer, but that comes at the expense of the businesses they owe money to.

It creates a vicious cycle where someone is always waiting to get paid.

A person interviewed for the report said that he spends a majority of his time “tracking down delinquent payments, sometimes in excess of 90% of his week,” instead of operating his company.

Addressing the issue will necessitate cooperation from both cannabis companies and government officials overseeing the industry, the report noted. Failure to tackle the problem promptly could lead to a wave of failing businesses, further shaking the sector’s stability.

“With federal illegality still in place, and limited options available to address short termed gaps in financing, there is an incentive for self-preservation, even if that means putting others out of business,” the report said.

The post Small cannabis firms get squeezed as industry falls $3.8B behind on bills appeared first on Green Market Report.

420GrowLife

via www.KahliBuds.com

Adam Jackson, KahliBuds, 420GrowLife