Cannabis research firm Whitney Economics initiated a nationwide survey to gauge the extent of delinquent payments and their impact on cannabis businesses.
What Happened: This initiative comes amid growing concerns that late payments could pose a significant risk to the sector's stability.
The survey aims to uncover the prevalence of payment delays in the cannabis industry and evaluate the financial health of licensed operators.
Whitney Economics' previous research revealed that in 2022, less than 25% of cannabis businesses were profitable, highlighting the industry's fragile economic state. The new survey seeks to delve deeper into the reasons behind the financial struggles faced by cannabis operators.
"At a time when cannabis licensees are struggling economically, state legislators and regulators appear to be tightening controls on this market," Beau Whitney, the founder and chief economist at Whitney Economics, said.
"These controls, when combined with lack of cash flow, may have catastrophic impacts on businesses."
Early findings from the survey paint a concerning picture:
- 43% of respondents report that delayed receivables hinder their ability to service debts.
- 32% note that such delays affect their capacity to pay state or federal taxes.
- 59% believe that delayed payments have a more significant impact on their business than federal tax policy 280e.
- Some businesses report delinquencies amounting to two months' revenue, totaling millions of dollars, forcing them to operate on effectively 10 months of cash flow.
Why It Matters: The survey underscores the unique challenges cannabis operators encounter, particularly their lack of access to conventional financial tools like bridge loans. This exclusion often results in predatory lending practices, with interest rates ranging from 33% to 50%. The federal illegality of cannabis further complicates matters, as operators are denied bankruptcy protection, leading to personal financial ruin upon business failure.
Delinquent payments are affecting all segments of the cannabis value chain. Farmers, manufacturers and ancillary businesses bear the brunt more than retailers.
The issue has already led to layoffs in several companies.
Whitney concludes with a call to action, suggesting the need for state and federal policy interventions to prevent business failures and job losses in the cannabis industry.
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