California Cannabis AB 766: Debt Solutions for Retailers and Distributors

The state of California has recently introduced Assembly Bill 766, a piece of legislation that aims to address the growing issue of unpaid debts within the state’s legal cannabis industry. This bill, proposed in March 2023, seeks to impose strict payment rules on cannabis retailers and distributors, requiring them to pay bills for goods and services totaling $5,000 or more within 15 days of the final date listed on the invoice. This comes as a response to the increasing number of unpaid sales and marijuana taxes, which amounted to $250.4 million as of December 2022.

AB 766 is primarily designed to provide a clearer framework for invoice payments and to protect licensed cannabis businesses from non-payment. It also aims to promote a more accountable and transparent cannabis supply chain within California, ultimately benefiting both operators and consumers. The bill is backed by a coalition of industry stakeholders called Financial Stability for California Cannabis (FSCC), which includes major players such as Kiva Sales & Service, Lowell Farms, Nabis, and Sunderstorm.

By addressing the growing debt crisis in the state’s legal cannabis market, California lawmakers hope that AB 766 will encourage compliance, enhance financial stability, and foster healthier business practices among all parties involved in the industry. As the state’s cannabis debt continues to rise, providing a solution for this issue is crucial for the sustainable growth of the market and the well-being of its many stakeholders.

Footnotes

1. https://reason.com/2023/05/04/this-california-bill-would-mandate-punishment-of-marijuana-debtors-without-a-hearing/ ↩
2. https://www.benzinga.com/markets/cannabis/23/05/32238909/600m-debt-bubble-across-ca-cannabis-supply-chain-under-pressure-bill-proposes-punishment-without ↩
3. https://baghoomianlaw.com/cannabis-compliance/ab766-california-cannabis-invoices-payments-essential-guide/ ↩
4. https://mgmagazine.com/press-releases/leading-industry-players-spearhead-financial-stability-for-california-cannabis-coalition-to-solve-statewide-debt-crisis/ ↩
5. https://www.cannabisbusinesstimes.com/news/financial-stability-california-cannabis-debt-credit/ ↩

AB 766 and Its Purpose

AB 766, also known as the Cannabis Credit Protection Act, is a piece of legislation introduced in California to address the growing issue of debt within the cannabis supply chain, from cultivators to retailers. The bill aims to enforce timely payments and enhance financial stability across the industry.

Cannabis Credit Protection Act

The Cannabis Credit Protection Act, or AB 766, was introduced by Assemblymember Phil Ting in March 2023. According to the bill’s analysis, its primary goal is to require cannabis licensees to pay bills for goods or services sold, with a total value of at least $5,000, within 15 days of the final date listed on the invoice. This mandate aims to promote better financial practices and reduce the debt bubble across the supply chain.

A critical aspect of the bill is the enforcement of payment deadlines. As cited by Reason, AB 766 stipulates that failure to comply with the payment deadlines could lead to punishment without a hearing. Additionally, the bill allows – and even requires – the state to police cannabis contracts, as mentioned by Harris Bricken.

By implementing such measures, the Cannabis Credit Protection Act aims to provide a more stable financial landscape for all participants in the California cannabis industry. It also strives to improve accountability among distributors and retailers, ensuring that businesses honor their financial commitments.

Department of Cannabis Control’s Role

The Department of Cannabis Control (DCC) is the primary regulatory body overseeing the cannabis industry in California. Established under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), the DCC works to implement, enforce, and administer the provisions related to the commercial cannabis industry in the state, ensuring the welfare of consumers and the overall market.

Licensing and Regulation

The DCC has various responsibilities, including issuing licenses to entities working in the cannabis industry, enforcing regulations, and monitoring compliance among licensees. As part of the Control, Regulate, and Tax Adult Use of Marijuana Act (AUMA), the DCC deals with both medicinal and adult-use cannabis sectors.

One important aspect of the DCC’s role is to establish and enforce strict regulatory guidelines for cannabis businesses. These regulations encompass cultivation, manufacturing, distribution, transportation, and retail sale of cannabis products. The licensing process consists of thorough background checks, ensuring that applicants have the necessary qualifications and appropriate facilities to operate within the California market.

A recent development in the California cannabis industry is the introduction of A.B. 766, which aims to address the issue of outstanding debts among cannabis retailers and distributors. The bill requires cannabis licensees to pay bills totaling $5,000 or more within 15 days from the final date listed on the invoice. This legislation exemplifies the DCC’s commitment to maintaining a fair and transparent market while safeguarding both retailers and distributors from potential financial pitfalls.

In conclusion, the DCC plays a crucial role in the California cannabis industry by ensuring that businesses operate in a legal, regulated, and financially responsible manner. Through the implementation of legislation like A.B. 766 and the ongoing enforcement of licensing and regulatory requirements, the DCC remains an essential component in maintaining a safe and thriving cannabis industry in the state of California.

Implications for the Supply Chain

Retailers and Distributors

The introduction of California’s Assembly Bill 766 (A.B. 766) has significant implications for the cannabis supply chain, particularly for retailers and distributors. The bill demands that cannabis licensees pay bills for goods or services amounting to $5,000 or more within 15 days of the final date listed on the invoice. Adherence to the payment terms is essential, and failure to comply may lead to penalties without a hearing.

As a result, retailers and distributors will need to ensure they have sufficient credit and cash flow to comply with the proposed payment terms. This will require them to carefully manage their finances and potentially seek additional financial support to handle payments promptly. In addition, organizations like the California Cannabis Industry Association and Cannabis Distribution Association may need to adjust their practices and advocate for fair payment terms to help ease the burden on their members.

Manufacturers and Cultivators

The ripple effects of A.B. 766 will also impact manufacturers and cultivators within the cannabis supply chain. Since retailers and distributors must abide by the 15-day payment rule stated on invoices, manufacturers and cultivators may experience a faster turnaround in payments for their goods and services. This could improve their cash flow and overall financial stability.

However, the pressure to adhere to strict payment terms can create a domino effect, causing tension among entities along the supply chain. The California Cannabis Manufacturers Association, for instance, may need to address these concerns and provide support to manufacturers who might not be able to meet the demands of their clients under the new regulations.

In conclusion, A.B. 766 seeks to mitigate the negative impact of the cannabis industry’s $600 million debt bubble on the supply chain, particularly for retailers, distributors, manufacturers, and cultivators. The effects of this legislation demonstrate the importance of credit, prompt payment, and collaboration among industry stakeholders in ensuring a sustainable and successful cannabis industry in California.

Payment Terms and Conditions

Credit Limits

In the California cannabis industry, there has been an increasing concern about the stability of payment terms and the outstanding debts between retailers and distributors. The state has introduced a bill, AB 766, to address these issues and assist cannabis businesses. One of the key aspects of this bill is the establishment of a credit limit on the sale of goods and services between licensees.

The credit limit set forth by AB 766 is $5,000. This means that for any transaction involving goods or services with a total value of at least $5,000, the licensee needs to adhere to the specific payment terms established by the bill.

Due Dates

The due date for invoice payments plays a crucial role in ensuring timely payment and maintaining a stable financial environment for both retailers and distributors. According to AB 766, the payment for goods or services with a total value of $5,000 or more must be completed within 15 days following the final date set in the invoice.

By enforcing strict payment terms and requiring cannabis businesses to clear their outstanding invoices within a specified time frame, California aims to mitigate the risk of financial instability and help the cannabis industry thrive. This will not only prevent a $600M debt bubble from affecting the supply chain but also establish trust between retailers and distributors, leading to a more robust and sustainable cannabis market in the state.

Regulation and Compliance

License Suspension and Revocation

The state of California has implemented strict regulations to maintain compliance and enforce discipline within the cannabis industry, especially for retailers and distributors. One such regulation is the introduction of AB 766, which focuses on prompt payment for goods or services by cannabis licensees.

AB 766 mandates that cannabis licensees pay bills for goods or services, totaling $5,000 or more, within 15 days of the final date on the invoice. Failure to comply with this regulation can result in disciplinary action, including license suspension and revocation. This policy is in place to ensure that businesses within the cannabis industry adhere to financial responsibilities and maintain a level of professionalism.

License suspension and revocation could take place if a licensee fails to follow the regulations set forth by the Bureau of Cannabis Control (BCC). This agency is in charge of regulating commercial cannabis licenses for both medical and adult-use cannabis in California, ensuring that retailers, distributors, testing labs, microbusinesses, and temporary cannabis events operate within defined guidelines.

However, AB 766 raises due process concerns among some licensees, as it may lead to disciplinary action without a hearing, potentially impacting their right to address disputed facts. It is essential for regulators to address these concerns and provide a platform for due process, ensuring that licensees have the opportunity to contest potential penalties.

In addition to disciplinary actions set forth by AB 766, cannabis retailers and distributors must also comply with California’s extensive regulatory framework, which includes critical aspects like excise tax collection. Noncompliance, in this case, may result in severe penalties, ultimately leading to suspension or revocation of the license.

To maintain a strong and compliant cannabis industry in California, it is crucial for all involved entities, including retailers and distributors, to be aware of the current regulations and continually strive to meet the established guidelines. This commitment to compliance and adherence to the regulations will foster a healthy and thriving cannabis market for both businesses and consumers in the long run.

Concerns and Criticism

Debt Bubble

California’s cannabis industry is facing a debt crisis, with retailers, distributors, and cultivators experiencing what some are calling a “debt bubble.” This financial situation is causing concerns for businesses throughout the state’s cannabis supply chain. The State’s Assembly Bill 766 (A.B. 766) aims to address this issue, but critics argue it may exacerbate the problem.

A.B. 766 proposes to establish clear terms of sale across the supply chain and establish oversight of sales, potentially leading to businesses being punished without a hearing if they don’t meet specific payment terms. However, this approach could jeopardize the financial stability of marijuana businesses and fail to address the root causes of the debt crisis.

Several factors have contributed to the rising debt bubble, such as the high tax rate on cannabis, lack of financing options at the federal level, and payment disputes. In addition, the industry’s lack of transparency and accountability has allowed some cannabis operators to function while overleveraged, putting further strain on credit and debt management.

Creditworthiness

Another key concern surrounding A.B. 766 is its potential impact on creditworthiness within the cannabis industry. The bill stipulates that cannabis licensees must pay invoices of $5,000 or more within 15 days of the due date stated on the invoice. This short payment window may force businesses to prioritize payments to remain compliant, potentially impacting their credit standing and limiting their access to credit.

Additionally, critics argue that A.B. 766 does not sufficiently address due process concerns. Attorneys like Harris Bricken, who specializes in cannabis law, claim that the lack of a hearing or proper dispute resolution process could unfairly penalize businesses and hinder their ability to resolve payment disputes amicably.

Furthermore, regulation and transportation costs continue to burden cannabis operators, further straining their finances and creditworthiness. With these combined factors, A.B. 766’s stringent payment terms could add to the debt crisis rather than alleviate it.

In conclusion, while A.B. 766 attempts to address the growing debt bubble and creditworthiness issues within California’s cannabis industry, its current approach may not be the most effective solution. Additional measures to tackle the root causes, such as tax reform or greater access to financing options, may be necessary to ensure the industry’s long-term stability.

Stakeholders’ Perspectives

Industry Associations

The Financial Stability for California Cannabis (FSCC) is a coalition backed by various industry associations like the California Cannabis Industry Association and the California Cannabis Manufacturers Association. These associations support AB 766, authored by Assemblymember Phil Ting, as it aims to ensure financial stability for the entire California cannabis supply chain, including cultivators, wholesalers, distributors, testing labs, and retailers.

Companies

Many leading industry players are part of the FSCC, including HERBL, CannaCraft, Calyx Peak, FundCanna, Glass House Group, Lowell Farms, Sunderstorm, The Parent Company, and PetalFast.

These companies support AB 766 for its potential to address the challenging debt crisis within the California cannabis industry. The bill would hold cannabis licensees responsible for paying bills for goods or services totaling $5,000 or more within 15 days of the final date listed on the invoice by January 1, 2024.

The debt crisis arose from flaws in Proposition 64, which legalized adult-use cannabis sales and implemented taxes on cultivation and retail sales. The crisis could lead to the closure of hundreds of shops across the state. By ensuring financial stability and addressing the debt crisis, AB 766 aims to alleviate the burden on various stakeholders within the industry.

The FSCC whitepaper, authored by Keith Cich, co-founder of Sunderstorm, an infused-product manufacturer, further describes the significant concerns that industry stakeholders face. Mark Ainsworth, CEO of HERBL, a leading cannabis distributor, echoed these sentiments while expressing that the cannabis industry’s success depends on solving the current debt crisis and achieving financial stability through proactive measures backed by AB 766 and the FSCC.

Future Outlook and Recommendations

As the California cannabis industry faces a $600 million debt bubble, Assemblymember Phil Ting has introduced AB 766 to address this issue. This bill aims to mandate cannabis licensees to pay bills for goods or services totalling $5,000 or more within 15 days of the final date listed on the invoice.

To ensure the long-term stability of the California cannabis industry, it is crucial to address the ongoing debt crisis. A coalition spearheaded by industry players like Kiva Sales & Service, Lowell Farms, and Nabis, named target=”_blank” rel=”noopener noreferrer”>Financial Stability for California Cannabis (FSCC), has been formed to tackle this problem. The coalition intends to develop comprehensive solutions, such as:

• Improving financial management: Encourage businesses to adopt better accounting practices and cash flow management so that they can make timely payments and avoid further debt.
• Enhancing legal compliance: Ensure that all licensed cannabis operators adhere to the payment deadlines set forth by the legislation and remain transparent in their financial dealings.
• Promoting fair trade practices: Address instances of predatory pricing, where larger businesses exploit smaller players, and foster a competitive market that benefits all stakeholders.
• Educating stakeholders: Develop resources, workshops, and seminars for businesses in the cannabis sector to better understand and navigate their financial obligations and options.

By implementing these recommendations, the California cannabis industry can become more resilient and prepared for future challenges. This will not only contribute to the growth of the market but will also ensure that enterprises can operate effectively without amassing excessive debts. While AB 766 may provide some immediate relief, it is important to consider a holistic approach to secure the long-term financial stability of the industry for all involved parties.