Cannabis Debt in California Close to Spiraling Out of Control!

Years of California cannabis distributors not paying their bills might be leading up to a massive disaster. If the debt bubble actually pops, businesses across the state will begin failing in droves.

According to some of these business owners, their delayed payments are caused by a lack of profitability in the industry. It’s amassed an incredible amount of overall debt carried by cannabis distributors.

California cannabis distributors owe $25 million on average

While it’s difficult to calculate exactly how much these businesses owe, some claim the number is above $600 million. With no one investing in the industry, it’ll only continue to grow until it reaches a breaking point.

Jerred Kiloh, the owner of Higher Path, which is a licensed cannabis retailer in California, doesn’t see a future for the industry and believes disaster is imminent.

According to Kiloh, the $600 million amount was calculated through dozens of interviews with distributors across the state. He also found the average amount of debt for larger distributors is around $25 million.

On top of this, slightly over 60% of this debt is over two months old, which tends to be considered bad debt that’s nearly impossible to get rid of.

This debt bubble could be detrimental to a large portion of the industry. Should it actually pop, a lot of the companies won’t survive for long enough to get back into the game later on.

One distributor from the San Francisco bay area, Matt Yamashita, believes a mass extinction is underway for cannabis growers and retailers in California and in a year’s time, only half of the businesses will still be operational.

Cannabis industry can’t compete with the illegal market

The trend has come to a point where it’s even visible on some of the SEC reports filed by companies that trade on the Nasdaq and the NY Stock Exchange.

Only last month, Innovative Industrial Properties, a San Diego-based cannabis leasing company, revealed that two of their southern California tenants were $5.7 million behind on rent.

These developments led to New York regulators working with California distributors to impose some new rules in the industry, one of which would make it so any retailers that fail to pay their credit within 90 days are reported to the state.

New York’s office for Cannabis Management didn’t comment on the recent changes; although it does make sense for them to try and make use of the mistakes that California made.

Unfortunately, the issue lies in how the industry was run from the very start. Growers have supplied retailers for years without asking for the money immediately upon delivery of the product.

This created a trend of farmers accepting payments several months after the initial delivery was made.

The illicit market is making it incredibly difficult for these retailers to move the product, which then leads to distributors being stiffed, resulting in growers not being paid at all.

After months of the same issue compounding on top of itself, the industry has reached a breaking point. It’s hard to imagine any of these distributors or retailers will be able to repay their debts without going bankrupt.