Whitney Economics, a cannabis economics data, consulting and research firm, has deployed a nationwide survey of cannabis operators and ancillary businesses to assess the impact delinquent payments are having on the cannabis industry. Preliminary findings indicate that delinquent payments represent an existential threat to cannabis operators regardless of size or market.
The objective of the survey is to determine how pervasive delinquent payments are in the cannabis industry and to assess the overall economic health of cannabis licensees. Previous research conducted by the firm has shown that less than a quarter of cannabis operators in 2022 were profitable. The delinquency survey is attempting to provide a more granular examination of why cannabis operators are struggling.
"At a time when cannabis licensees are struggling economically, state legislators and regulators appear to be tightening controls on this market. These controls, when combined with lack of cash flow, may have catastrophic impacts on businesses." Beau Whitney, Founder and Chief Economist at Whitney Economics.
The preliminary results of the survey are compelling.
- 43% of respondents stated that delinquent accounts receivables are impacting operators' ability to service their debt
- 32% of respondents stated that delinquent accounts receivables are impacting an operator's ability to pay state or federal taxes
- 59% of respondents reported that delinquent payments are having a greater impact on their business than federal tax policy 280E.
- Some respondents indicated delinquencies were in excess of two months of revenue, totaled millions of dollars and that they needed to run their yearly operation on what amounted to 10 months of cash flow.
The delinquent payment issue has more acute impacts on cannabis operators since they generally do not have access to traditional financial tools such as bridge loans or loans against account receivables. As a result, predatory lending is pervasive with interest rates often running between 33% - 50%. Given the federal illegality of cannabis, operators do not have access to bankruptcy protection, so if a business fails, the result is individual wealth destruction.
Delinquent payments are impacting the entire cannabis value chain, although it tends to impact farmers, manufacturers and ancillary operators more than retailers. Multiple respondents indicated that delinquent payments have forced their companies to lay off employees.
"Given the serious nature of this issue and the potential for business failures and labor displacement, state and federal policy intervention would be justified." Whitney added.