As the cannabis industry grows, it continues to experience several teething problems. The chief among them is the high levels of bad debt.
Several companies, including one that was previously described as the Apple store of cannabis, have closed down because of debt. This situation has become so untenable that experts believe only a bailout can save businesses. However, that isn’t a permanent solution.
“In the cannabis industry, both plant-touching and industry-adjacent companies are grappling with challenges in receiving timely payments when extending trade credit,” Adam Cavanaugh, President of the CannaBIZ Credit Association, a service of CannaBIZ Collects, says. “The complexity of performing thorough due diligence within this regulatory environment, coupled with market saturation, has elevated the level of risk associated with forging partnerships.”
Unfortunately, this increased risk is now manifesting in cash flow issues. Additionally, the industry is witnessing a shift towards transactions of lower value and higher volume, which in turn is putting pressure on profit margins. This combined scenario is significantly impacting the industry’s overall financial landscape, according to Cavanaugh.
Tackling Debt Head On
The CannaBiz Credit Association is poised to tackle the debt issue in the cannabis industry head-on. Cavanaugh says the company’s strategy involves equipping members with exclusive access to their Debtor Database. This contains information on over 4.9 thousand debtors and more than $90 million in bad cannabis debt. This resource allows members to assess risks more effectively when entering new partnerships and to monitor their existing partnerships.
“Additionally, the CCA is actively collaborating with members to gather valuable data, which will play a pivotal role in creating industry-specific credit scores,” Cavanaugh says. “This groundbreaking initiative will bring about significant change by establishing credibility for companies that consistently meet their financial obligations. Simultaneously, it will hold businesses accountable for honoring trade credit agreements. In essence, the CCA is championing a comprehensive approach that addresses the industry’s debt challenges while fostering a culture of responsible financial practices.”
How CannaBIZ Works
Brett Gelfand, CEO of CannaBIZ Collects, breaks down the process of how exactly the company helps clients with their debt problems:
- Discovery Call: First, CannaBIZ Collects starts with a discovery call.
- Submission Process: If they feel the client is a good fit, they then need to proceed with a two-step submission process. This includes a contingency fee agreement and claim submissions so their collectors can get to work.
- Debt Investigation: CannaBIZ Collects then utilizes the $90 million of existing data before proceeding with its persistent contact to demand payment.
“When it comes to debt management, maintaining control over your accounts receivables is of utmost importance. Keeping cash flow steady requires vigilance,” Cavanaugh says. “Utilizing resources like our Debtor Database can provide insights into partner payment behaviors. Identifying potential non-payment issues early could prompt proactive steps such as assertive payment collection, renegotiating terms, issuing demand letters, or, if necessary, engaging a collections firm like Cannabiz Collects to facilitate payment retrieval. These are actionable measures that companies can promptly implement to safeguard their financial situation from deteriorating further.”
If you are a cannabis business who is currently struggling with a debt problem, you can reach out to CannaBIZ Collects via their website at cannabizcollects.com.