Executive Summary: Cannabis Delinquencies: An Existential Threat to the U.S. Cannabis Industry

Cannabis Delinquencies: An Existential Threat to the U.S. Cannabis Industry

Beau Whitney, Chief Economist

March 29, 2024

Executive Summary

There are a lot of conversions happening within the industry and among state and federal policy makers about the future state of cannabis. Issues include existential topics, such as: 

• SAFE/SAFER banking
• Rescheduling vs Descheduling 
• Interstate Commerce
• Social Equity and Social Justice
• Federal Tax Reform

While these topics are important in the long term, they do not address the immediate, short-term health of cannabis operators. Basic issues like profitability and cash flow are critical for the industry to be viable and sustainable. This report articulates how vulnerable the cash flows are for operators in the U.S. cannabis supply chain.  

Delinquent Payments and Receivables in U.S. Cannabis In previous reports, we examined the business conditions of U.S. cannabis operators. Notably, since 2022, operator profitability has fallen from 42% to 24%. One common theme in the U.S business conditions report was that operators have learned to do more with less. A critical element of doing more with less is cash flow management.  

“I would love to pay my bills, if others would simply pay me first so I could do so.” There are two basic elements of cash flow: accounts receivable (what is owed to you) and accounts payable (what you owe to others). Data from our previous surveys indicated that there were potential issues with cash flow and we wanted to explore the data more closely. This United States Cannabis Delinquent Payment Report examines the impact of late payments on operators, and the extent of the issue, across the country.  

Neither Viable Nor Sustainable Based on a survey conducted in Q4 '2023, delinquent accounts receivable are a major issue for U.S. cannabis operators, totaling $3.8 billion of the $28.8 billion in total legal cannabis sales. This amount equates to 1.6 months of all U.S. cannabis revenue in 2023. The issue is having an impact across all sectors of cannabis, some more so than others. This is neither viable nor sustainable for cannabis licensees, who operate in a low-margin industry.  

Selected findings contained in this report:

• Overall:  Delinquencies greater than 45 days account for 56.3% of the total delinquencies. This is disproportionately impacting smaller and minority owned businesses and in many cases is resulting in forced market consolidation and individual wealth destruction.
• Retail:  Retail carries the lowest amount of delinquencies, while carrying the highest amounts of delinquent accounts payable.
• Cultivation: It all starts with the plant, yet cultivation is the one sector hit the hardest by delinquent payments.
• Vertical: Companies with two or more licenses in their vertical are included in this category. Vertical integration does not necessarily immunize a company from delinquencies. In fact, they carry the majority of the delinquencies, followed by cultivators.
• MSO: Delinquencies from large corporations and MSOs accounted for $1.4 billion or 36.4% of total delinquencies. At an average of $34.8 million per large entity, they are significant contributors to late payments, but they are not the only ones. 
• Regulators:  Regulators have played a key role in creating this issue. The current regulatory and economic environment incentivizes delinquent payments. For there to be accountability in the system, delinquent payments can only be addressed at the regulatory level. Policy changes can level the playing field, or they can further exacerbate the issue.  

This is An Existential Issue for the Cannabis Industry in the United States While there is plenty of blame to go around, the single most important finding contained in this report is that delinquencies are an existential threat for the U.S. cannabis industry.  To remain viable, it is critical that the issue be addressed.   

Vetting and Validating the Data Takes a Village Based on data provided by Cannabiz Collects, state regulators, proprietary models and our survey respondents, the data has been triangulated and validated as credible. We would like to thank the cannabis operators across the country who completed our survey with such high-quality inputs and Cannabiz Credit & Cannabiz Collects for providing additional data that validated our findings.  It was through this collective effort that we were able to articulate the impacts and shine a light on this important issue.

About Whitney Economics

Beau Whitney is the founder and Chief Economist at Whitney Economics, a global leader in cannabis and hemp business consulting, data, and economic research. Whitney Economics is based in Portland, Oregon. Beau has provided policy recommendations at the state, national and international levels and is considered an authority on cannabis economics and the supply chain.