While trade credit is not currently the norm in the cannabis market today, we believe it will be in the future and with credit there are collections.  Almost every company we have spoken to, whether they are grower, manufacturer or service provider are extending some type of credit to a segment of their customers.  Most of this credit extended today in the cannabis market is what we call “friendship credit”, credit that is extended to a customer who you have known for a while and have developed a personal relationship with and where no real credit analysis was performed.  Friendship credit might be ok in today’s existing marketplace but in the near future, when the rules change, many of your customers on friendship credit are not going to pay you what you are owed on time and some are not going to pay you at all.  When this happens, what are you going to do?

The following is a common-sense approach to the problem of determining whether a customer who you have extended credit to, whether it allowing them to float checks to you or giving them 7,15 or 30-day credit terms, is about to become a collection problem where you may need outside help.  Customers of...more

INTRODUCTION

According to Forbes, “the legal cannabis market was worth an estimated $7.2 billion in 2016 and is projected to grow at a compound annual rate of 17%. Medical marijuana sales are projected to grow from $4.7 billion in 2016 to $13.3 billion in 2020. Adult recreational sales are estimated to jump from $2.6 billion in 2016 to $11.2 billion by 2020.” These estimates, we believe, assume that the banking system will begin treating cannabis businesses like almost every other business and make bank credit available. When this happens, as we are already seeing in the California market, cannabis related business will no longer be primarily operating on a cash basis. You will be extending trade credit on about 90% of your sales and once you reach a certain level of annual revenue, you will need to develop a Credit & Collection Department that will help you manage the second largest asset on your balance sheet - your accounts receivable. 

Your emerging business has the potential to grow significantly, but only if you can implement the operational infrastructure and financial controls that are necessary to support your growth. If you, operationally, can’t keep up with ...more