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Cannabis Collections Issues

In recent years, the burgeoning cannabis industry in California has faced a significant issue: distributors and retailers failing to pay their bills. This problem has led to complications not only for the businesses themselves but also for their partners working to maintain compliance within the industry. An article written by Hilary Bricken highlighted the frustrations faced by these businesses and pointed to potential upcoming legislation that aims to address this issue – California Assembly Bill 766 (AB 766).
AB 766 proposes a solution to the non-payment issue by allowing, and even requiring, the state to oversee cannabis contracts and ensure timely payment between licensees. According to the proposed legislation, any licensee must pay for goods and services from another licensee within 15 calendar days after the final invoice date. In addition, the deadline for invoice payment cannot be more than 30 days after the goods or services have been transferred. This bill has been designed with intentions to encourage prompt payment and discourage breaches of cannabis contracts within the industry.
While the intent of AB 766 may be to fix the status quo, some industry experts believe that the bill could potentially lead to widespread problems for both the licensees and the state’s regulatory agencies. Among the bill’s provisions, licensees with a value of at least $5,000 in unpaid invoices are required to report these transactions to the Department of Cannabis Control (DCC). The DCC would then be mandated to intervene in the cannabis contract breach and take disciplinary measures if necessary. Despite these good intentions, concerns surround the effectiveness of AB 766 in addressing the core issues and whether it may create new complications for the already complex cannabis industry in California.

Current Cannabis Collections Issues

Cannabis collections have become a significant issue for California cannabis businesses, which often face the challenge of dealing with distributors and retailers that don’t pay their bills. This dilemma ultimately affects the entire cannabis industry and leads many businesses to suffer financially.
One primary concern is the lack of timely payments. Companies are often invoiced for goods and services, but some distributors and retailers fail to pay within the agreed time frame. These situations can create cash flow problems for the suppliers, hampering their ability to operate and grow their businesses effectively. For example, if a cannabis contract has net 30 payment terms and is paid 46 days after delivery, problems begin.
Besides payment delays, another pressing issue is underpayment or non-payment of owed invoices. Some businesses skip town on invoices for no apparent reason, which leads to bad debts and strained relationships among industry stakeholders. The underpayment or non-payment of invoices ultimately harms the reputation of not only the businesses involved but the cannabis industry as a whole.
Furthermore, invoice disputes between suppliers, distributors, and retailers can take considerable time and resources to resolve. Often, these disputes arise due to misunderstandings or miscommunication regarding the terms of the cannabis contracts, resulting in delayed payments and added costs on all parties involved.
To address these cannabis collections issues, authorities have considered implementing legislation, such as AB 766 in California. However, solutions like these have raised concerns about potential problems that may arise for both licensees and the state.
In conclusion, it is crucial for industry stakeholders to find ways to address and resolve these cannabis collections problems, ensuring smooth operations and fostering a sustainable and robust cannabis market in California and beyond.

Proposed Solution: AB 766

AB 766 is a piece of proposed legislation designed to address the issue of unpaid invoices in the California cannabis industry. The bill aims to provide a solution for businesses that are struggling with distributors and retailers who don’t pay their bills on time. This legislation would enable the state to police cannabis contracts, ensuring that licensees pay for the goods and services they receive from other licensees.
The provisions of AB 766 apply only to sales made after January 1, 2024. The bill requires licensees to pay for goods and services from another licensee within 15 calendar days after the date of the final invoice. Additionally, the invoice date cannot be more than 30 days after the goods or services are transferred, which ensures timely payment between licensees.
In cases where payment is not received on time, licensees that sell goods with a value of at least $5,000 must report the unpaid invoice to the Department of Cannabis Control (DCC). The DCC then becomes responsible for intervening in the cannabis contract breach, notifying the non-paying licensee of the issue. If payment is not made within 30 days, the DCC can issue a notice of warning or citation.
Furthermore, repeat offenders will face disciplinary action initiated by the DCC. Importantly, a reported licensee who has an unpaid invoice will be prohibited from purchasing goods on credit from another licensee until the initial invoice is paid. However, it should be noted that AB 766 does not apply to excise tax collection.
AB 766 is presented as a confident and knowledgeable solution for policing cannabis contracts in California. It provides a clear and neutral framework for addressing unpaid invoices in the cannabis industry while maintaining a reasonable timeline for payment between licensees. By involving the Department of Cannabis Control in the enforcement of these contracts, the legislation hopes to provide a more secure and reliable environment for cannabis businesses.

AB 766 Payment Terms

AB 766 introduces a noteworthy change in payment terms for cannabis contracts. It proposes that any licensee must pay for goods and services from another licensee within 15 calendar days after receiving the final invoice. This specific requirement narrows down the typically seen net 30 payment terms in the industry. Furthermore, the invoice date cannot exceed 30 days after the transfer of goods or services.
The significance of these changes in payment terms lies in providing a clear structure to streamline transactions between cannabis licensees, by shortening the payment period to 15 days, thus aiming to reduce issues related to unpaid invoices. However, if a cannabis contract with net 30 payment terms is not settled within 46 days after delivery, complications may arise.
Under AB 766, licensees who sell goods with a value of at least $5,000 and do not receive payment on time must report the unpaid invoice to the Department of Cannabis Control (DCC). Consequently, the DCC becomes responsible for intervening in the breach of the cannabis contract. The following steps include notifying the non-paying licensee and, in cases of non-payment within 30 days, issuing a warning notice or citation.
Moreover, if a licensee is reported for not paying an invoice, it is prohibited from purchasing goods on credit from another licensee until the payment of the initial unpaid invoice is made. It should be emphasized that AB 766 does not apply to excise tax collection.
The AB 766 payment terms present a confident and knowledgeable perspective on the subject of cannabis contracts, offering a solution to the common problems associated with late payments and unpaid invoices. However, the success of this proposal depends on its effective implementation and the industry’s response to the new payment terms.

Department of Cannabis Control's Role

The Department of Cannabis Control (DCC) plays a crucial role in ensuring compliance and enforcement in the California cannabis industry. Under AB 766, the DCC would be responsible for monitoring and intervening in cases where there are unpaid invoices between licensees.
In situations involving undisputed invoices over $5,000, licensees must report the unpaid invoice to the DCC. The DCC would then have the responsibility to initiate a reporting system that notifies the non-paying licensee. Should the licensee still not make payment within 30 days, the DCC can issue a notice of warning or citation.
Further violations may result in more substantial consequences, as the DCC would be required to commence disciplinary action against the non-paying licensee. This could take the form of a hearing or other formal proceedings to determine the appropriate response to the multiple breaches of cannabis contracts.
While the proposed legislation aims to address the persistent issue of unpaid invoices, there are potential downsides to increased government intervention in cannabis contracts. For instance, the proposed reporting system could significantly increase the workload of the DCC, resulting in slower response times and potential inefficiencies in handling non-payment disputes between licensees. Additionally, licensees who are reported for unpaid invoices would be barred from purchasing goods on credit from other licensees until the initial unpaid invoice is settled. This may hinder their ability to maintain steady supply chains and contribute to possible market disruptions.
In conclusion, the role of the DCC under AB 766 would be to maintain a fair and regulated cannabis market by intervening in cases of unpaid invoices and ensuring compliance with contractual obligations. While the bill’s intentions are commendable, it is vital to carefully consider the implications of increased DCC involvement for both the industry and the state.

Limitations and Concerns of AB 766

AB 766 addresses the issue of unpaid invoices among cannabis businesses in California. While it aims to resolve payment disputes, there are several limitations and concerns related to the implementation of this legislation.
One concern is the potential infringement on due process, as the legislation requires licensees to report unpaid invoices to the Department of Cannabis Control (DCC) after a 15-day payment period. The DCC then intervenes and may issue warnings or citations to non-paying licensees without an adequate process for addressing disputes or erroneous reports.
Involvement of the government in commercial contracts adds an additional layer of bureaucracy, potentially slowing down the resolution of disputes and increasing costs for both licensees and the state. The DCC’s mandatory intervention in payment disputes may not be the most efficient or appropriate solution for businesses to address contractual breaches.
Furthermore, the reporting requirement in AB 766 could negatively impact business relations between licensees, as it creates an obligation to report peers who fail to pay on time. This might hinder negotiation processes and discourage collaboration between parties in resolving payment disagreements privately.
The legislation also does not take into account the complexities that often arise in payment disputes, such as disagreements on invoiced amounts, the quality of goods and services provided, or late deliveries. Addressing these concerns requires more specific mechanisms tailored for the cannabis industry, rather than simply relying on statutory rights and government intervention.
Lastly, AB 766 does not apply to excise tax collection, which is a significant aspect of the cannabis industry’s financial transactions. As such, it may not be the most comprehensive solution for regulating payment practices and addressing contractual breaches in the sector.
In conclusion, while AB 766 attempts to resolve payment disputes amongst cannabis licensees, it falls short in various areas, including due process, government involvement, and handling complex disputes. Considering these limitations, alternative approaches should be explored to more effectively regulate and enforce payment-related contractual obligations within the cannabis industry.

Alternative Approaches

Addressing the issue of unpaid bills in the California cannabis industry requires a more targeted solution than what AB 766 proposes. There are various alternative approaches that would better suit the industry’s needs, while remaining confident and neutral in tone.
One approach to tackling unpaid invoices in the cannabis sector is to focus on improving commercial contract payment terms. By clearly outlining the consequences for non-payment, such as interest, late payment fees, and suspension of product deliveries, both parties can have a better understanding of their obligations and potential consequences. Contracts may also include clauses that allow for flexibility in specific circumstances, providing room for negotiation and compromise.
Another viable option is to strengthen cannabis litigation processes. Setting up specialized courts or mediation services that focus exclusively on resolving cannabis-related disputes could encourage parties to pay their invoices more promptly. With expert knowledge of the industry, these legal professionals would be better equipped to assess the situation and offer advice on the best course of action.
In addition to commercial and litigation remedies, improving excise tax collection could alleviate some of the pressure on the California cannabis businesses. Developing more efficient and transparent tax collection mechanisms can help ensure that both buyers and sellers of cannabis products fully understand and fulfill their tax obligations. Any discrepancies in tax collection could then be addressed swiftly and effectively.
Finally, instead of imposing strict regulatory measures as proposed in AB 766, the state could consider offering incentives for businesses that consistently make timely payments. This could involve tax breaks, expedited licensing procedures, or improved access to market resources. By rewarding positive behavior, the industry can encourage companies to prioritize their financial obligations.
In summary, the California cannabis industry could benefit greatly from a combination of better commercial contract payment terms, strong litigation processes, and efficient excise tax collection systems. With these measures in place, the state can more effectively address the challenges of unpaid invoices while promoting a thriving and responsible cannabis industry.