The Cash Flow Problem In The Cannabis Market

The state of California as you know it has passed its one year milestone for the legalization of recreational marijuana. The state is addressing and enforcing several of its regulatory issues and these are ongoing regulatory steps. Dispensary owners have to adapt to the most currently compliance regulations and rules. However, huge issues still remain for dispensary owners that want to stay afloat for the future. Cash flow is the main problem that would cause these businesses to fold and dispensary owners in the cannabis market are concerned.

The Hidden Agenda

Let's not sweep this under the rug because it is already all out in the open. Operators in Canada that have venture backing tend to do better in the cannabis market, especially since medical and recreational marijuana has been fully legalized. Many venture capitalists are now flooding the cannabis market in Canada to put up their money so operators can solve their cash flow problems.

The farmers and those with long standing company brands are still fighting to claim a fair share of the cannabis market. For the long standing company brand, it could take two months from the first day of marijuana product sales to get paid by vendors and others. The cannabis farmers have to wait much longer. For this reason, there is an imbalance when it comes to working capital for operators that still have to pay staff and put up money for the capacity of future production.

The lag in negative production is a concern for retailers, delivery businesses and dispensaries because of the unreliability of inventory replenishment.

The Industry and Market

The problem of cash flow can be harmful to the cannabis market and to the industry at large, but especially to small business owners. For this reason, there will always be an imbalance as a result. The cash problem can even cause rejected payment terms and rejected product deliveries.

Whether cannabis has passed the testing requirements to make sure that it is safe for people consume, it still has substantial risk of being rejected by the retailer. One of most heavily regulated segment of the marijuana supply chain is rejection of product deliveries. Being successful at wholesale deliveries comes with its challenges for dispensary owners.

Due to cash flow problems, dispensary owners might have to reject product deliveries at one point or the other. And this is not good for business in the long run.

The Compliance

Compliance is one of the things that frequently cause product rejection and eventually cash flow problems for businesses in the cannabis market. Packaging and wrong documentation are usually the culprits as it relates to compliance.

In addition, states have their own mandatory compliance requirements on transportation and packaging of products. This involves type of vehicles, employee status, documentation and product as well as payment. Each municipality has its own regulations and so if a driver has to deliver in a certain area, the dispensary owner has to be aware of those compliance requirements.

Terms of Payment

A transaction won't be complete until the payment has been collected. When an order is made on payment terms, it is less likely that the business owner will collect more than forty percent of the cash. However, cash on delivery will do the opposite. Many buyers will purchase on an invoice transaction, which means that the business owner has to wait for a future payment. For this reason, there is limited cash flow.

Final Summary

Working capital will be strained on payment terms and this will make the challenges for the operator so much more difficult. Dispensary owners have to study the cannabis market and the consumer as well as the industry and work out the logistics of how to improve cash flow.

Learn more about the cannabis market and how to start a marijuana business by visiting the Cannabis Training University.