Dispensary Owners Caught On Tape Bragging They Don't Pay Their Vendors: Industry Vet Says Black Market Has More Integrity Than Legal

"Integrity has no need of rules." Albert Camus, French philosopher (1913-1960)

Today, unfortunately, it seems that we have more rules and less integrity. At least this seems to be the case for one section of the California cannabis industry. Recently, a video went viral of dispensary owners in a meeting talking about how much money they saved by not paying their "mom-and-pop" vendors.

"You know what’s so cool," one owner asked. "How much money we’ve saved by not paying the vendors that have gone out of business…I’m talking about these mom-and-pop brands that come and go.”

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There surely must be other cases. To learn more about what's going on in the California cannabis space, Benzinga reached out to the founders of Stone Road, which has a farm in Northern California and operations across five states. Stone Road has been stiffed for tens of thousands of dollars.

"The reason that all these mom-and-pop shops went out of business was because you had retailers like this holding invoices for 100+ days thus forcing small businesses into bankruptcy," said Lex Corwin, Stone Road’s CEO and co-founder.

Corwin recently opened up on social media about the struggles his company had. He suggested that the black market actually operates with more integrity than legal companies. He explained that legal retailers can take up to 200 days to pay what they owe, whereas people operating on the illicit market pay on the spot. 

Beating A Dead Horse 

He told Benzinga that it feels like "beating a dead horse because all I do is talk about this nowadays but quite simply, some retailer’s unwillingness to pay is the single greatest impediment to a healthy industry." 

How did this happen? What led to this chaotic situation? 

Corwin said three factors played a major role. "The first being, bad actors using net terms from many different brands to fund acquisition and expansion plans which is unethical plus should be illegal," he said. "Two, over saturation of shops in certain areas – to highlight this, Santa Rosa has over 30 legal shops to service a 170k population where huge population centers like Bakersfield and Irvine have zero legal shops. Lastly, over taxation which has retail stores paying 25%+ of their gross revenue in state and local excise and sales taxes. "

Sabrina Wheeler, COO of Stone Road, explained that the illicit market doesn't have another choice as net terms have never been an option. Both Wheeler and Corwin, don't encourage shopping from illicit sources, of course, pointing out that products on the black market are not tested. She added that even though illegal operators can get in big trouble for not paying taxes, many consumers just can't afford legal, tested and taxed cannabis. 

Corwin pointed out that "Ultimately, we won't see major progress on this issue until there are credit laws on the books because some of the biggest plus most successful chains of stores in California are guilty of repeated non-payment." 

The Closure Of A Delivery Giant 

Last November, California-based marijuana delivery giant Grassdoor closed down while owing money to several businesses, including Stone Road.

"Now upon learning one of our biggest customers, Grassdoor, is shutting its doors and with it, the millions of dollars it owes hard-working farmers, brands, manufacturers, etc. it's honestly hard to keep going," Corwin wrote in a post. 

Did Stone Road hear from anyone at Grassdoor? 

“We haven't heard from anyone on the Grassdoor team to express their regret about this situation, which is disappointing," Corwin told Benzinga. "We have heard from the receiver in charge of their dissolution and the timeline for being repaid, if ever, is currently unknown. I believe that there was major financial mismanagement which led to the collapse of their platform as they repeatedly acquired competitors while racking up enormous balances of unpaid invoices." 

Corwin added, "The market is structurally broken" and taxes are just too high. 

Wheeler noted that Grassdoor tended to be overstaffed. "At one point, they had three purchasing managers. To survive turbulent times, you need a lean plus strong team. Everyone needs to wear multiple hats. I am not saying this blindly, Lex and I are a two-person team, we have zero full-time employees aside from our farm team. We handle everything from seed to sale and that's just what needs to be done. Similar to many others, we also have limited access to funds but we've never not paid a single person, ever." 

No Regrets, Just Love For Disciplined And Honest Work

Despite these turbulent times, neither Corwin nor Wheeler regrets entering the cannabis space. 

"While the industry is extremely tough and has been a roller coaster over the past 6 years, I am here to stay," Wheeler said. "They say diamonds are created under pressure so I believe if we can withstand the challenges, strategically pivot when necessary, continue to grow plus operate ethically, we will be positioned as one of the most attractive companies for a corporate entity to acquire us when cannabis goes federally legal."

Corwin seconded her thoughts saying every painful moment is a learning opportunity, and even though this is a tough industry, this crazy experiment needs to be carried out in full. "Enjoying your job is crucial," he says. "I love to work and close deals so I couldn't imagine myself doing anything else. In the next two years, you'll see us continue to expand across California and launch into at least 3 new states." 

For Wheeler, next to love is discipline as the most important factor to continuing to do the hard and honest work every day and always “holding to our morals.” 

See Also: California Authorities Auction Off Seized Weed Property From Marijuana Businesses That Owe $10.4M In Taxes

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