Ancillary firm aims to solve payment crunch for cannabis brands

As cannabis cultivators and product manufacturers struggle to collect payments for products sold at retail, more marijuana service providers are attempting to close that gap.

New York-based LeafLink, a software platform that connects cannabis retailers with brands, is launching a product designed to ensure cannabis producers receive automated weekly payments based on the previous week’s retail sales.

The Payment on Sell Through (PoST) system is the third payment option offered on LeafLink’s platform, according to the company’s chief product officer, Matt Hutchinson, joining Direct Pay and FlexPay.

“LeafLink is guaranteeing the payments that happen through these transactions,” Hutchinson told MJBizDaily.

“If something happens along the way, we’re making sure the sellers and manufacturers are taken care of.”

PoST is available in Colorado, Michigan and Mississippi, and LeafLink said it plans to expand the offering to additional states – including California – in early 2025.

Cannabis retail payments

While marijuana brands set payment terms and track their owed receivables, many report feeling pressured to agree to terms of net-30 and even net-60.

A growing number of marijuana brands insist retailers pay for products upon receipt, however, having been burned when they provided cannabis inventory and never received payment.

According to LeafLink, PoST allows retailers to keep more cash on hand and delay payment until products are sold to the end consumer.

The platform also improves inventory management by identifying quantities sold and order frequency of stock-keeping units (SKUs) for each storefront, the company says.

Since beta trials began in June, more than 70 cannabis businesses have implemented PoST, according to LeafLink.

Ron Gibori, CEO of Michigan-based cultivator Six Labs, told MJBizDaily that the system has adjusted three SKUs to avoid stale and overstocked inventory since it started using the platform in June.

Six Labs determined that it needed to increase order size to match demand and doubled sales on a stale SKU to make room for new products.

Gibori said that before using the system, retailers behaved like Costco shoppers, buying flower in bulk to save money and then not purchasing anything else for several months.

But with PoST, Six Labs is paid as the product is sold, and the system enables it to rightsize its customers’ orders.

“It takes the onus off the retailers, and we reconcile every two weeks,” Gibori said. “It’s our responsibility to make sure that the orders are the right size.

“It’s going to help normalize the relationships between the supplier and retailer. It’s what needs to be done when you look at retailers having cash-flow issues.”

Gibori also noted that as prices compress – as they have in saturated markets such as Michigan – cannabis businesses must become more efficient.

“It only makes you more profitable,” he said.

After Michigan-based Bloom City adopted PoST, the retailer:

• Doubled its sales on a preexisting stale product through discounts.
• Increased orders on SKUs that sell better than previously thought.
• Freed up cash by not paying for inventory up front.
• Didn’t run out of the products it stocks.

Michigan’s adult-use market rivals California for the most unpaid invoices, according to Brett Gelfand, managing partner at St. Petersburg, Florida-based Cannabiz Collects and founder of the Cannabiz Credit Association.

Late payments in the cannabis industry reached $3.8 billion in 2023 – equivalent to about 1.6 months of legal cannabis sales nationwide, according to a report by Whitney Economics.

Delinquencies are primarily the result of retailers missing payments to brands and cultivators as stores struggle with cash-flow constraints, limited startup capital, federal tax issues and competition from the illicit market.

The Whitney Economics survey also found that:

• Cannabis cultivators are the most impacted by delinquent payments, and retailers had the fewest complaints.
• Delinquent payments are affecting the industry as a whole, but smaller and minority-owned businesses are the most impacted.
• 44% of respondents said delinquent receivables were making it harder to service debt, while 34% said it was impacting their ability to pay taxes.
• 3% of survey respondents said delinquent accounts receivable have an even greater impact on their cannabis businesses than Section 280E of the Internal Revenue Code, which prevents operators from deducting business expenses because marijuana is still federally illegal.

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.