California cannabis distributors sharing info on firms that pay their bills, those that don’t

A small group of licensed California marijuana distributors is trying to solve the ripple effects of unpaid bills by pooling information detailing which companies are reliable or unreliable at paying their tabs.

The move comes as the coronavirus is inflicting widespread financial pain on cannabis companies, which, unlike other mainstream industries, have been largely excluded from federal relief efforts.

The goal is to help distributors stay afloat and remain financially solvent by identifying and avoiding California marijuana companies that have been a financial drag on the rest of the supply chain.

The effort is proceeding on two tracks.

The Cannabis Distribution Association (CDA) – a group of roughly 30 businesses, including about 20 distributors – has been working on an ad-hoc credit rating system for its members.

The system is designed to help rate which businesses – retailers, manufacturers and others – have been paying their bills and which haven’t, said Lauren Fraser, the CDA’s board chair.

“Several of our members have built their own internal credit scoring and rating systems for businesses,” Fraser said, “and we’re working on how we can synchronize those methods and those lists.”

Separately, Todd Kleperis, founder of Desert Hot Springs-based distributor Hardcar, has been recruiting a fraction of the roughly 1,000 licensed distributors in California for a new Crisis Alliance aimed at helping a select few companies survive the coronavirus pandemic through information-sharing and logistical support.

Among other functions, the alliance will put together a “blacklist” of companies that can’t be trusted to pay their vendor bills, Kleperis said.

“It’s kind of like an emergency network to help all the really good distributors stay aware and stay relevant” as the market likely contracts through 2020, he added.

“If I call (a given distributor), and I say, ‘Who are your top-five most obvious really bad players,’ he’ll know those operators off the top of his head. And that goes on the list.

“So what you do is create an industry blacklist that distributors can use to route out all the bad players and brokers that are doing illegal work or doing bad deals.”

Kleperis said the Crisis Alliance he’s assembled so far has four members aside from Hardcar: Blackbird, Ridgeway Distribution, Yerba Buena Logistics and Mammoth Distribution.

But he’s hoping to grow that number in the coming months while still keeping membership to a handful of operators that prove themselves trustworthy.

Distributors will be allowed membership – and access to the databases – only by getting a referral from an existing member.

Kleperis said the alliance’s functions, including the blacklist, will launch this month.

No formal alliance … yet

The CDA has not yet formalized any relationship with the Crisis Alliance, Fraser said, but its board might vote on it fairly soon.

In the meantime, Fraser said, she expects her organization’s data-sharing on good and bad actors to begin soon.

“The only reason we haven’t launched this yet is we want to make sure there’s a way to validate the information while protecting individual businesses’ privacy,” she said.

“We wouldn’t want to be in a position where we’re publishing information, either for internal use among members or externally, that’s provided by members but isn’t able to be validated.

“Because that could cause some liability issues if that information is incorrect.”

Kleperis and Fraser agreed a financial crisis is looming for the marijuana industry as a whole because of ripple effects from unpaid bills by many companies, which is what both groups aim to solve.

According to Fraser, the scope of the debt problem – which she referred to as “the accounts receivable bubble” – is “in the tens, if not hundreds, of millions of dollars of floating credit.”

“I wouldn’t be surprised if it’s over $100 million easily,” Fraser said. “This (coronavirus) crisis has definitely put a lot of fear into a lot of businesses and forced a lot of people to stop extending credit the way they used to and to require (cash on delivery) for transactions.

“When that happens all at once across hundreds of businesses, it really starts to paint a realistic picture of how this industry has been living off credit.”

Distributors shuttering operations

The situation has already forced some distributors to close their doors, said Chris Coulombe, the CEO of Sonoma County-based Pacific Expeditors, a distributor that ceased operations in March and might not reopen.

Coulombe even wrote to Gov. Gavin Newsom about the circumstances that led Pacific Expeditors to close and to inform the governor that “a fully compliant cannabis company cannot achieve profitability in the current market.”

Pacific Expeditors is still owed at least $500,000 from other California cannabis companies – mostly retailers – and that lack of repayment was one of the primary reasons Coulombe said he shuttered his business.

“I wish it would have happened sooner,” Coulombe said of distributors sharing information about reliable companies with which to do business.

If such a system had been in place previously, it “definitely” would have helped him keep Pacific Expeditors’ doors open longer, he said.

“In concept, I think it’s appropriate,” Coulombe said. “There are a lot of people who took of advantage of distributors on the front end, us included.”

Coulombe also said he knows of a “handful” of other distributors that have also closed but declined to identify them. He said it’s still unclear whether Pacific Expeditors might reopen.

“It’s a big unknown at this point. I don’t see the point in opening it any time soon,” he said.

Situation worsens

Kleperis said the issue of distributors having to eat huge sums has been worsening and his goal is to help other businesses avoid what Coulombe is facing.

“I had one company recently, they stuck a lab with a $260,000 bill,” Kleperis said, “and we had to use a private investigator to go and serve that guy because he wasn’t willing to even take a call from the lab anymore.”

The Crisis Alliance will also function as a way for distributors to share information on best practices during the coronavirus outbreak and to support each other with logistical help.

The alliance will last only as long as the coronavirus does, Kleperis said, and won’t try to take CDA’s place as a trade association.

“The Crisis Alliance is both financial and operational help for the industry,” he added. “When you bring ships together during a storm, you can weather the storm stronger.”

John Schroyer can be reached at [email protected]

For more of Marijuana Business Daily’s ongoing coverage of the coronavirus pandemic and its effects on the cannabis industry, click here.

3 comments on “California cannabis distributors sharing info on firms that pay their bills, those that don’t
  1. dave on

    “a fully compliant cannabis company cannot achieve profitability in the current market.”

    Finally, someone is doing the math on this ridiculous California cannabis scheme! where the hell were the bean counters telling everyone that the numbers don’t add up.

    The next time voters say to legalize cannabis, Don’t let the politicians hide a new war on drugs in the language, like they did with prop 64.

    Reply
  2. Richard Cardoza on

    This list could be handled by the State. The money from cannabis tax revenues should fund these things.

    In the Beverage Alcohol industry each state’s ABC is in charge of and manages a State delinquency list – all licensees (hospitality or retail) who haven’t paid a bill to distributors in a certain timeframe, and daily compiles and publishes the findings to all distributors.

    The delinquency list makes it “illegal” for a distributor to sell to any account that is: A.) On this delinquency list B.) has not paid you on any invoice within terms (typically 10 or 30 days) Unless Distributor receives some payment on the account plus cash in advance of next shipment.

    This has kept distributors in most states very strong financially and keeps them from being the “bad guys” when it pertains to blacklisting.

    Reply
  3. Scott Linden on

    Once again, my early warnings were ignored and not heeded. For quite some time I’ve been trying to explain the negative economic bottom line that is unavoidable based on the government’s current marijuana tax scheme (and I use the word “scheme” in every sense of its meanings).

    The only truly viable solution is for every distributor to produce all of their products in-house, so to speak. Of course, the taxes as it passed from ea internal entity to another still raises great issues of concern for me, but as an outspoken proponent for medicinal use since the 1980’s and as the first attorney who was willing to, (please excuse the pun), place my balls on the chopping block and overtly assist industry businesses to incorporate and follow a set of self-imposed rules I’ve had a very unique perspective at what was, what is, and what appears to be the direction in which legalization will follow….and it does not have a very pretty prognosis based upon my extensive personal experiences.

    Once again I’ll explain in the most basic means I can without becoming too technical.

    Within the next decade marijuana/cannabis will be reclassified as a Schedule II narcotic, meaning it’s dies have medicinal benefits, however, it is considered highly addictive. This would place it on equal footing with other narcotics such as OxyContin, fentanyl, Ketamine, heroine and cocaine. (Yes, even the last three have been deemed to have medicinal benefits which I will not go into here).

    Once the federal ‘ban’ is lifted, then interstate transportation also becomes legal, but governed under the commerce clause. Then, like hyenas, in will come the big box brands (drug companies, tobacco companies and even large retail chains such as Wal-Mart) will be allowed to toss their endless war-chests into the industry resulting in the closure of virtually every mom and pop type production company; from seeds and farms to concentrates to frozen dinners will slowly emerge pretty much everywhere…most likely first testing the waters in all-natural markets such as Trader Joe’s, for example. Obviously, the tobacco companies will release cigarette appearing boxes of 20 joints almost immediately, (especially with the knowledge that many have been purchasing large plots of farming land in central and southern America for several years already).

    For now, a delinquency list is the most viable option for many in the industry, but it has the potential of becoming a form of neo-McCarthyism very easily if the list is not properly maintained, checked and re-checked almost daily. I greatly fear that once a business is forced on the list for whatever reason, they may be permanently black-balled or the scarier alternative of closing up shop only to reopen under a different name and run themselves into insurmountable debt all over again.

    This, of course, brings into question the refusal to provide stimulus money to businesses within the industry. Anyone feeling a bit persecuted? Yet again?

    There are solutions. There are ways for business owners to come together and form a united front. I’ve personally been working on several different possible solutions which, if push comes to shove, as it seems it will, I’ll be providing some of these ideas to all who are interested for a fair, round table discussion on the viability of each.

    Feel free to reach out to me if you’re feeling the pressure building and would like to create a solution that could help your business survive.

    Keep those fingers crossed

    Namasté

    Rev Scott H Linden, Esq
    420Lawyer.com

    Reply

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