Cannabis Collections Cash Crunch

Ron Naulls, Naulls Legal Group


There are clear signs that the macroeconomic environment is causing some financial tightening across the board, and the cannabis industry is not immune. The uncertain times and challenging environment (i.e., lack of access to capital, taxation, regulation/compliance, the illicit market, inflation, and other macroeconomic issues like geopolitical tensions) add to the perfect storm. They are causing the industry to face a cash crunch.

Sticks and stones break bones, but there is a better way to get that pay!

The underground and illicit market may handle business the old way. However, if you are a licensed grower, distributor, retailer, or manufacturer, you probably have more than one instance of an unpaid invoice or balance from another licensee. The issue is so prominent in California that if the legislature has its way, all cannabis contracts will be regulated under a newly proposed bill. Even the Credit Management Association is jumping into the fray.

So what to do? You do not need a regulator to tell you how to handle your business. It all boils down to the four corners of the agreement between you and the other licensed business from the outset. We like to ensure our client’s agreements are explicit about what happens when the other side cannot pay their bill on time. For instance, a clear call out when payment is due and if any grace period applies. In addition, any late fees or costs to collect delinquent debts. Outlining these types of terms provides evidence and clarity to both parties, reducing the likelihood of misunderstandings. Above all, it plainly defines penalties or consequences for late payments to encourage the timely settlement of debts.

Second, communication and solid relationships with other licensed counterparts are crucial. Establishing a positive rapport can lead to a more amicable resolution versus animosity that can spill over to social media. Seek to understand any underlying issues with fellow cannabis enterprises. Having a sense of empathy will foster healthy business relationships within the industry as we collectively navigate financial challenges. It is easier to do business with existing clients than to market and endeavor to find new clients.

Third, if direct efforts fail to yield results, consider engaging an experienced firm that collects debts in the cannabis industry. Law firms have the edge over debt collection agencies in that competent firms in the industry possess the expertise and resources to navigate the legal and regulatory complexities specific to the sector. For example, federal bankruptcy laws are not a remedy for the cannabis industry. Entrusting debt collection to a professional law firm can alleviate the burden on your business, allowing you to focus on core operations while increasing the likelihood of successful recovery.

Finally, in cases where communication and an experienced firm have exhausted collection efforts, legal action may become necessary. An attorney specializing in cannabis law can explore available legal remedies. We guide clients partnered with the Naulls Legal Group through the legal process, including filing lawsuits or pursuing alternative dispute resolution methods, such as mediation or arbitration. These approaches can help resolve disputes without resorting to extended court battles, saving time and resources.

In conclusion, collecting outstanding debts in the cannabis industry requires a strategic and proactive approach. By implementing clear terms and agreements, maintaining open communication, leveraging professional debt collection firms, and exploring legal recourse, cannabis businesses can maximize their chances of recovering outstanding debts from other licensed enterprises. It is crucial to strike a balance between assertiveness and maintaining positive relationships within the industry, ensuring a thriving and sustainable business ecosystem for all stakeholders involved.

Naulls Legal Group is the premier law firm for cannabis-based businesses representing entrepreneurs and organizations nationwide based out of Southern California. We are adept at navigating delicate cannabis compliance, legislation, bureaucratic challenges, and enforcement around the increasingly complex and heavily regulated cannabis laws.

Naulls Legal Group is a California NORML legal committee member. See their listing in the Cannabis Attorneys directory.

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