(This story has been updated to correct the role of cannabis distributors in California.)
Herbl, a major licensed California marijuana distribution company, is in receivership after falling behind on a key loan, a source close to the situation confirmed to MJBizDaily on Tuesday.
The collapse of Herbl – which reportedly handled $700 million worth of product sales in 2022 – is the most prominent failure of a cannabis company in the state to date and has major implications across the industry.
Potentially tens of millions of dollars in unpaid invoices are due to brands across the state, which now fear that that revenue, including for product already sold, is lost forever.
The state might also be due millions in unpaid taxes.
Herbl’s financial troubles underscore the upheaval within California’s marijuana industry as brands struggle to collect on unpaid invoices.
The terms of Herbl’s receivership mean that investors and other claimants due money from Herbl might be paid before brands, according to people familiar with the situation.
Mike Beaudry, Herbl’s co-founder and CEO, did not respond to a voicemail and a text message from MJBizDaily seeking comment.
The company’s main lender is East West Bank, which also last week canceled a line of credit it had extended to the company, the source confirmed.
East West Bank did not respond to a telephone message and an email seeking comment.
The company’s other investors include Measure 8 Ventures, Salveo Capital and Silverleaf Venture Partners, MarketWatch reported last year.
As of September 2022, Herbl employed more than 200 – including salespeople and delivery drivers – and worked with 1,000-plus licensed retailers, according to MarketWatch.
Industry aware of Herbl’s problems
Though the company has not publicly confirmed the situation, Herbl’s collapse is common knowledge throughout the cannabis industry.
On LinkedIn, former Herbl employees reported last week that they were seeking jobs.
That has since been followed by a near universal acknowledgment among industry insiders on Tuesday that the company was finished as a going concern.
“The recent receivership of Herbl, one of California’s largest cannabis distributors, should be a wake-up call to policymakers that all is not well, and immediate action is called for to avert a crisis that has already started,” Wesley Hein, president of the Cannabis Distribution Association, a trade group representing distributors, told MJBizDaily.
Herbl remains listed as a member of the group.
“Herbl was well-run, well-financed and stocked with well-known brands,” Hein added.
“However, even with these advantages, it was unable to overcome the structural challenges of operating in California and now finds itself in receivership.
“Herbl’s downfall is a stark reminder that if state and local policymakers don’t immediately address regulations, taxes and the illicit market, we are going to see the continued erosion of a vibrant industry.”
California’s mandatory distributor model requires brands to sell products through licensed distributors.
Distributors collect payment from retailers after product is sold and then remit payment for the original product delivery back to the brand, minus a fee.
Payment issues come to a head
Brands started reporting unpaid or partially paid invoices with the company this spring, but the situation appears to have come to a head within the past few weeks.
The company has reportedly laid off nearly all its workforce, leaving behind only a skeleton crew that’s attempting to collect payment from California retailers – who are, in turn, fielding calls from brands that are trying to collect payment that’s owed to them through Herbl.
“We’re trying to collect” on accounts receivable owed by Herbl, Ciencia Labs CEO Ben Mitchell told MJBizDaily on Tuesday.
“But the fact is, unfortunately, we’re not going to get paid through Herbl.”
Mitchell, who co-founded the social equity brand with his wife, Carolina Vazquez Mitchell, a recognized cannabis product developer, did not share how much the brand is owed.
But he said Herbl began falling behind on paying brands about six weeks ago.
The company previously sent out checks a few weeks ago.
In that time, Mitchell added, efforts to find out what was going on at Herbl did not yield answers.
Herbl’s downfall is the latest domino to fall after tax and regulatory burdens hit licensed cultivators and retailers, who have publicly called for major reform for years.
“Now it’s cascaded all the way down the brands,” Mitchell said. “I don’t really know how anyone’s going to get out of here, either.”
Chris Roberts can be reached at firstname.lastname@example.org.