$600M Debt Bubble Across CA Cannabis Supply Chain Under Pressure, Bill Proposes Punishment Without A Hearing

California Assembly Member Phil Ting (D) introduced legislation in March aiming to strictly regulate cannabis licensee payments for goods and services sold. The measure, A.B. 766 would demand marijuana licensees to pay bills for goods or services amounting to $5,000 or more within 15 days of the final date listed on the invoice (which could be in 30 days maximum after products or services were delivered), writes Reason.

The main idea behind the measure is to help resolve California's mounting cannabis debt struggles. Data from California's Department of Tax and Fee Administration (CDTFA), revealed that as of Dec. 2022, cannabis businesses accounted for $250.4 million in unpaid sales and marijuana taxes, out of $4.4 billion in total taxes due.

Ting indicated the amounts could be even higher, “The unpaid debt bubble is over $600 million across California’s supply chain,” he said as reported by the outlet.

Can this bill help?

Bill Highlights

• Under the measure, sellers would be required to file a report with the California Department of Cannabis Control (DCC) when a buyer misses a deadline. Then, the DCC would “commence a disciplinary action,” with possible suspension or revocation of the buyer's license. 
• Once notified about the disciplinary action by the DCC, the buyer would not be allowed to buy products or services from any other licensee on credit. Businesses would also no longer be allowed to set the terms of a transaction, as the measure is the one that defines it. 
• AB 766 also does not apply to excise tax collection. 

Expert opinion: An attorney at Los Angeles' Harris Bricken Law, Griffen Thorne acknowledges the heaviness of the debt burden, but is also concerned about the heavy penalty imposed by the bill, which can be based on disputed facts.

"I have seen plenty of cannabis contracts with fully negotiated payment terms that might violate AB 766," Thorne wrote. "If AB 766 becomes law, it will mean that the government dictates commercial [contract] payment terms."

“A.B. 766 does not "address what happens in the event of a disputed invoice," Thorne added. "What if XYZ retailer doesn't pay ABC because the goods XYZ bought were moldy? Well, it looks like ABC would still have to report it. Again, this makes no sense."

Supporters And Detractors

The Cannabis Distribution Association, California Cannabis Manufacturers Association, and California Cannabis Industry Association support the bill. Retailers do not; they call it “much too drastic and punitive in nature and will result in a greater net negative for the industry and the state of California.”

Supporters justify the bill’s intention to treat the marijuana industry differently from other sectors. They argue that since there is no way to verify the creditworthiness of any other cannabis licensee, licensees are at higher risk of becoming overleveraged.

See details on the bill on Reason and Harris Bricken's blog.

Photo: Benzinga edit with images by Billion Photos and Yarygin on Shutterstock