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Wednesday, May 31, 2023

Ponzi scheme for the cannabis industry

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Connecting the dots in the marijuana industry is becoming more and more important as you try to figure out the true size and structure of the market. Who is doing well, who is struggling, is anyone actually making money?

If you’ve noticed the headlines this week, there seems to be a growing disconnect between “accounts receivable” and actual revenue. Accounts receivable is what you’ve sold or billed, but haven’t been paid to you yet. The revenue is the actual payment you took for that bill and it’s now in your bank account.

The cannabis industry is having a huge problem with receivables and accounts payable. According to the NetSuite website:

A company’s accounts payable (AP) ledger lists its short-term liabilities — liabilities for items purchased from suppliers, for example, and money owed to creditors. Accounts Receivable (AR) is the money that a company expects to receive from customers and partners.

The growing dichotomy between reported and paid sales has become a major concern in the cannabis industry, to the point where a Ponzi scheme may be brewing, or a scheme called “beggar thy neighbor”.

Let’s start at the first data point and connect the points.

If you remember some eyebrows were raised on the hunt for alpha when printing giant money Weedmaps has stated in public filings that more than 500 customers are listed as “late” or unpaid. That was a canary in the coal mine for the marijuana industry because Weedmaps clients are actually collecting money from customers, generating revenue, selling the cannabis, and cash flowing. Weedmaps are an important part of the retail chain and allow cannabis sellers to be listed on a map and easily found by someone searching for “clinic near meOr entering a zip code to find marijuana in their area. If guys who already have sales and cash flow can’t foot their advertising bill, what hope does the rest of the industry have for it to become cash flow positive?

Whitney Economics has developed a survey that claims that just about 42% of all cannabis businesses are actually profitableThis includes those who do not pay sales taxes and debt securities.

The second data point recently is a file Last story by MJ BIZ About California’s largest cannabis industry players form coalition to help solve California’s marijuana industry’s massive credit and debt problems. According to MJ BIZ’s story:

A large group of California cannabis companies have formed a coalition to raise awareness and offer solutions to alleviate a credit crunch that threatened to upend the local marijuana industry.

Dozens of cannabis brands, wholesalers and producers on Tuesday launched the Financial Stabilization of California Cannabis (FSCC) as part of ongoing efforts to address the complex debt problems facing the world’s largest regulated marijuana market.

“Collections and outstanding debts related to unpaid bills are major challenges facing cannabis operators of all types across the state, from growers to manufacturers, vertical brands to wholesalers, and everyone in between,” Vince Ning, Founder and Co-CEO for California cannabis distributor Nabis, he said in a press release.

The FSCC aims to create a more comprehensive and collective plan to tackle the debt crisis across the supply chain, rather than the individual operator-led initiatives that have tried to master one of the industry’s biggest challenges – Unpaid billsaffecting many cannabis businesses in California.

Notice the “Unpaid Bills” link? Going to MJ BIZ article posted the day before It’s called “California Cannabis Companies Hire Credit Group to Monitor Retailers for Unpaid Invoices.”

If you pick up on a topic here, are many bills being paid up and down the cannabis food chain in california, to the extent that now a weed credit bureau and monitoring group is being set up to try and figure out who can and can’t pay their bills.

But wait there’s more.

Guess who got stiff too? It’s not just farmers, retailers and brands, but also the government, and they’re not too happy about it. The Canadian government announced a New aggressive plan to get lost cannabis tax revenue of the cannabis companies. Not to be outdone, California has realized that they’re getting a lot of IOUs from cannabis companies, too, and they also want to pay their excise taxes.

like Another MZ BIZ article Called “California Targets for Cannabis Business on Account of Unpaid Taxes,” it states:

A California business tax collector is ramping up enforcement against unlicensed and unlicensed cannabis companies, which owe the state nearly $200 million in unpaid taxes.

In the past few months, the California Tax and Fee Administration (CDTFA) has taken a new approach against clandestine companies that have undermined the legal market by skipping taxes and undermining licensed companies.

In particular, the CDTFA has launched raids and auctioned off forfeited property as part of an increased effort to collect unpaid taxes and rein in underground operators. Meanwhile, the legal firms are facing intense efforts by the state as well.

And the hits don’t stop there. SF Gate made headlines This week with their article titled “California Pot Industry Faces ‘Extinction Event.'” You guessed it, the opening lines are:

California a pot The industry could be on the brink of “extinction,” as pot shops go out of business as they lose out on tax payments and sink into millions of dollars in debt.

Debt problems that have plagued the industry for years – Report 2022 It was estimated that the industry was collectively more than $600 million in debt—but A.J changes In the tax code that took effect this year, stakeholders worried that a rising debt bubble could eventually become fatal. A San Francisco politician introduced a law this year in the state legislature that would crack down on companies that fail to pay their debts.

State law recently shifted the burden of paying cannabis sales taxes from distributors to retailers, with the first tax payments due May 1. Retailers have historically had the most trouble paying their bills, and many stores seem to lack the cash to pay state taxes. taxes, according to new state tax data obtained by SFGATE.

The article goes on to point out that at least 13% of legal pot offerings in California are havoc, or roughly the 265 cannabis stores in the state. They failed to make excise tax payments by the May 1 deadline, and now face a 50% penalty on the taxes they owe.

This should end well. If someone can’t pay his taxes, he’d better beat him up and make those taxes 50% more, because then he’ll surely be able to pay them.

If you’re keeping a running total so far of people who have become stiff in the cannabis industry it is..

1. Weed maps

2. California government

3. The Canadian government

4. Brands, growers, producers and manufacturers of hemp products

5. The Federal Government

Wait for the federal government? defy. If you read a file Writing Cannabis.net up to Benzinga Cannabis Capital ConferenceThe industry is in tatters now, and money is like a drop of water in the desert. Without reading the full 2,000 words, the message was that without debt financing there would be no cannabis industry in America right now. Even the MSO’s, yes, publicly traded bigots are toughing the US federal government on taxes right now, essentially “kicking the can down the road.” They hope they can go long enough to see the federal legalization and then take the IRS to court saying 280E tax codes are illegal And it’s not valid now that marijuana is a legal substance, so we don’t owe you all those back taxes.

I kid you not, this is their actual strategy. How long the IRS allows unpaid taxes to go through without serious repercussions is anyone’s guess, but it won’t end well when taxes are over $500 million with 7 years of interest and penalties on that number.

Do you realize what MSO’s earnings would actually be if they paid their taxes to the federal government on their due date just like you and I have to do with ours?

With unpaid and overdue debt (with interest), the entire marijuana industry could be just a house of cards, a Ponzi scheme of IOUs and bills payable. You can report $500,000 in sales based on accounts receivable and invoices, but what if you only collect $75,000 of that $500,000 over the next six months? $500,000 in principal sales is great, but your booked revenue that showed up in the bank account is actually $75,000.

Your neighbor’s beggar, weed maps or the Canadian government?

The numbers billed, or numbers billed, are a complete sham compared to actual revenue and bills paid, and the bills included statutory production tax and money owed from the 280E tax rules. It gets so bad that the cannabis industry is even setting up its own credit monitoring services to try and figure out who can pay their bills and who can’t. Wholesale markets come with a rating system, think Amazon or Ebay seller ratings, for cannabis companies so you can see who can pay for that order and who has a history of not paying for orders.

As several speakers at the Benzinga conference emphasized, debt financing is the only game in town for the cannabis industry right now, and that game appears to be coming to a harsh end as lenders claim their bills and unpaid notes.

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