The US Cannabis Industry is Booming If You Don’t Count the $3,800,000,000 Owed in Back Taxes and IOUs

The cannabis industry is great at not paying their bills.

If you remember the video that went viral for the dispensary owner saying the key to making money is not paying your vendors, and just let them go out of business.

In Canada, the Canadian government is cancelling 123 cannabis licenses over upaid taxes, and what they view as “uncollectible” debt.

In California, the state has created a “cannabis company deadbeat” list of entities that owe licensing and tax money to the state and can’t pay their debts.

In the US, total delinquent payments cannabis operators have exceeded $3.8 billion and could balloon to $4.2 billion in 2024 without some intervention. The problem stems, in part, from poor cash-flow management and the heavy tax burden of Section 280E, according to a report by Oregon-based Whitney Economics.

“The pressures created by current macroeconomic factors and regulatory policies have incentivized operators to stop paying their suppliers,” Whitney founder Beau Whitney said in a statement.

“This data further affirms the fact that the cannabis industry is struggling.

“Unless there is some form of federal and state regulatory intervention, the issues associated with the lack of payments will only worsen.”

An unknown number of respondents to a poll discovered that:

Delinquent payments mainly affect cannabis producers, while sellers get the fewest complaints.

Delinquent payments are harming the sector as a whole, but smaller and minority-owned enterprises are most severely affected.

Delinquent receivables were cited by 44% of respondents as making it more difficult to service debt, and by 34% as affecting their capacity to pay taxes.

Section 280E of the Internal Revenue Code, which prohibits cannabis operators from deducting business expenditures since marijuana is still illegal at the federal level, is perceived by 57.3% of survey respondents as having a higher impact on their marijuana business than outstanding accounts receivable.

California operators have been especially vocal about the delinquent payment problem.

A group of marijuana businesses in the state hired a credit association in May 2023 to try to recoup hundreds of thousands of dollars owed

Impact on Sector Dynamics: Cannabis Producers Bear Brunt of Delinquent Payments

Producers of cannabis bear a disproportionate amount of the burden of past-due payments in the sector. These companies, who grow and distribute cannabis goods, are severely impacted financially when customers fail to pay on time or at all. Their failure to receive product sales on time puts them in danger of not being able to pay for utilities and salaries, buy necessary supplies, and keep up with operations.

Cannabis growers are the industry’s backbone, delivering a consistent supply of goods to merchants and consumers. However, the consequences of payment delinquency impede the regular operation of their businesses. Aside from immediate financial worries, protracted payment delays limit manufacturers’ capacity to invest in expansion, R&D, and compliance measures required for long-term viability in a highly regulated industry.

In addition, the difficulties faced by cannabis growers go beyond simple budgetary limitations; they also affect the way they interact with suppliers and other players in the industry. These vital collaborations are strained by past-due payments, which might affect customers’ access to and satisfaction with cannabis goods. To preserve the integrity and stability of the whole cannabis sector ecosystem, the issue of payment delinquency among cannabis producers must be addressed.

Smaller and Minority-Owned Businesses Hit Hardest by Payment Delinquency

Smaller and minority-owned firms suffer the brunt of the cannabis industry’s financial delinquencies. These businesses, which frequently lack the financial reserves and credit access of bigger counterparts, are particularly vulnerable when payments are delayed or withheld. The gap in resources exacerbates the impact of late payments, increasing the financial hardship and operational issues that small enterprises face.

The cascading impacts of payment delays are more likely to affect smaller and minority-owned firms, even if bigger cannabis operations may be better equipped to withstand financial turbulence. The impact of non-payment on these businesses’ bottom lines is exacerbated by the fact that for many of them, unpaid receivables account for a sizeable amount of their income. Payment delinquency thus jeopardizes these companies’ survival and development prospects and makes it more difficult for them to compete in a market that is already fiercely competitive.

The need for focused interventions and support systems within the cannabis sector is highlighted by the disproportionate impact that payment delinquency has on smaller and minority-owned firms. It is imperative to tackle the structural obstacles that impede financial stability and provide fair opportunities for all parties involved in order to advance diversity, inclusivity, and resilience in the cannabis industry. A more inclusive and sustainable business environment may be created by stakeholders by giving these vulnerable enterprises’ demands priority.

Survey Reveals Challenges in Servicing Debt and Meeting Tax Obligations

A survey of cannabis sector participants reveals the significant financial hardship caused by payment delinquencies. Respondents identified the difficulties of servicing debts owing to pending receivables, with 44% rating this as a serious obstacle. The failure to collect payments on time not only disrupts day-to-day operations but also impedes long-term financial planning and growth goals for firms throughout the industry.

Furthermore, the survey results highlight how the cannabis industry’s ability to satisfy its tax responsibilities is impacted by payment delinquency. Of those surveyed, 34% said they were worried about their ability to pay taxes because they had unpaid receivables. In addition to the significant tax cost imposed by Section 280E, this simultaneous financial strain creates significant obstacles for cannabis firms trying to stay legal while navigating intricate regulatory frameworks and market dynamics.

The prevalence of these financial challenges highlights the urgent need for comprehensive solutions to address payment delinquency within the cannabis industry. Without timely intervention, businesses may face heightened risk of financial instability, regulatory scrutiny, and operational disruptions. Recognizing the critical role of financial stability in fostering industry growth and sustainability, stakeholders must collaborate to develop strategies that mitigate the adverse effects of payment delinquency and promote a more resilient and prosperous cannabis ecosystem.

Bottom Line

The burgeoning problem of delinquent payments within the U.S. cannabis industry, exceeding $3.8 billion and potentially ballooning further, underscores the urgent need for intervention. Stemming from issues such as poor cash-flow management and the burdensome tax regulations of Section 280E, this predicament disproportionately affects cannabis producers, especially smaller and minority-owned businesses, exacerbating financial strain and impeding operational stability. Survey findings reveal widespread challenges in servicing debts and meeting tax obligations, emphasizing the necessity for collaborative efforts among regulatory bodies and industry stakeholders to implement targeted solutions. Failure to address these issues not only jeopardizes individual business viability but also undermines the integrity and sustainability of the entire cannabis ecosystem, highlighting the imperative for proactive measures to foster inclusivity, resilience, and compliance within the industry.

IS THE CANNABIS INDUSTRY A PONZI SCHEME? READ ON…

IS THE CANNABIS INDUSTRY A PONZI SCHEME IF NO ONE PAYS THEIR BILLS?