Proposed Legislation to Regulate Commercial Cannabis Contracts in California: Pros and Cons

California’s Assembly Bill 766 (AB 766) offers a new regulatory approach to the commercial cannabis industry in the state. Introduced by Assembly Member Ting, the legislation aims to bring further clarity and structure to the cannabis business, particularly in terms of invoices and payment timelines for commercial transactions. While the bill has its proponents who believe it will create a more accountable, transparent business environment, critics argue that it may overburden smaller cannabis businesses and hinder the market’s dynamism.

The Provisions of AB 766

AB 766 is primarily focused on the regulation of cannabis sales transactions between licensees. The bill stipulates that for goods and services sold or transferred between licensees, payment must be made no later than 15 days following the final date set forth in the invoice. Additionally, it requires a licensee who has not received full payment 15 days after the due date to report the unpaid invoice to the Department of Cannabis Control. If a licensee fails to pay an outstanding invoice 30 days after being notified by the department, the bill gives the department authority to issue a warning, a citation, or commence disciplinary action. The bill also prohibits the licensee from purchasing goods or services on credit until the outstanding invoice is paid in full.

The Potential Benefits

Proponents of AB 766 argue that the legislation will strengthen accountability and reduce fiscal disputes in the commercial cannabis industry. By setting clear payment timelines and enforcing penalties for late payments, the bill could help ensure that transactions are completed in a timely manner, reducing financial uncertainty for businesses. This could also help mitigate the risk of debt accumulation and subsequent financial instability in the market.

The bill may also increase transparency in the industry by establishing a standardized payment process and allowing for oversight of transactions. It could lead to a more regulated market, potentially dissuading illegal activity and providing greater protection for licensed businesses. Furthermore, the disciplinary actions could serve as a deterrent for irresponsible financial behavior, encouraging a more compliant and ethical commercial cannabis environment.

The Potential Drawbacks

Critics of AB 766, however, express concern that the legislation could place an excessive burden on smaller cannabis businesses. The rigid payment structure could prove challenging for small operations that may experience fluctuating cash flows and rely on credit to sustain their operations.

Moreover, critics argue that the legislation could inhibit the free market dynamics of the cannabis industry. The imposition of strict payment regulations might deter new businesses from entering the market, reducing competition and potentially leading to higher prices for consumers.

The administrative burden on the Department of Cannabis Control is another concern. The department would need to manage an increased volume of reports and disciplinary actions, which could result in additional costs and resources.

Lastly, critics argue that the legislation does not offer a solution to the broader banking issues faced by the cannabis industry. Given that cannabis remains federally illegal, many financial institutions are reluctant to serve cannabis businesses, complicating payment processing and potentially contributing to the very payment delays the bill seeks to address.

Conclusion

As California continues to refine its regulatory framework for the commercial cannabis industry, AB 766 represents a step towards increased accountability and transparency. However, careful consideration is needed to balance the potential benefits against the possible drawbacks, particularly for smaller businesses. As the bill moves forward, it’s essential for lawmakers to keep the unique challenges of the cannabis industry in mind, and to explore solutions that will foster a healthy, competitive, and compliant marketplace.