On this hallowed 4/20, while consumers and businesses celebrate cannabis near and far (which is great!), it's important to be mindful that the cannabis industry is getting financially pummeled nationwide. For the cannabis companies able to survive this rocky time, cannabis collections are becoming an increasing headache as other cannabis businesses fold and/or just ignore payment obligations. Hopefully, cannabis companies have persisted in getting their intra-industry agreements in writing, through which there's a clear path to recourse against either licensees who can't or (more likely) won't pay their bills. In any event, the cannabis collections process is no easy task.
What to do if you're owed money by a cannabis company
Whether you're a manufacturer, grower, distributor, retailer, or something else, you're likely seeking payment from another cannabis licensee for whatever exchange of value went down in the past. For example, retailers sometimes have fee slotting agreements where they charge wholesalers for prime shelf space. Or perhaps you're an intellectual property licensor that's licensed your intellectual property to a cannabis company for a royalty. Or you might be a distributor that distributes product to retailers on net terms. Chances are at this point, regardless of the commercial relationship, the party that owes you money can't or won't pay, and they've maybe even started to ignore you. In that case, turn to your agreement with the other side and go straight to the breach or event of default section. That's your roadmap for recovery.
Incumplimiento de contrato
Once the other side is in breach of whatever performance obligation (here, timely payment), your agreement will tell you what you can and cannot do. Most agreements will have some kind of grace period for a default in order to allow for a cure. If you've given any relevant notices and are past the cure period, or there isn't one, next look to see if you have grounds to terminate the agreement (and, even better, if there's a liquidated damages provision that favors you).
Even if you don't have termination rights, if the other side is in breach and there's no cure, you typically don't have to continue performance under the agreement. If the company on the other side breaches regarding non-payment, be sure to look for any other breaches they've committed (like representations and warranties, a "change in control", an invalid assignment, etc.).
Demanda
Now that you're armed with your evidence of breaches, it's time to make a demand for cannabis collections. This is the part where you write a demand letter to the other side laying out the breaches and failure to pay, demanding that the other side make payment by a date certain, or face court action. Recognize that in this part of the cannabis collections process, the other side doesn't necessarily have a legal obligation to respond to you or even negotiate. When times are financially tough like they are now, the recipient will likely take their chances with just ignoring the demand, hoping that you'll go away since you don't want to throw good money after bad.
Colecciones de cannabis
If the other side ignores your demand, you may consider sending the matter to a debt collection agency (the alternative is to sue; see below). As a last-ditch effort before suing, collection agencies will take a portion of the amount owed as their fee (and, usually, if they don't recover, you don't pay). This is not ideal, but it could be faster and cheaper than suing depending on the amount you're owed. Aggressive collections agencies are going to pursue the other side with calls, notices, and emails (within the bounds of the law) in order to get the other side to pay. And we're to the point in the industry where at least one cannabis-specific collections firm exists.
Demandar
Prácticamente nadie, salvo los abogados litigantes (¡y ni siquiera todos ellos!), quiere acabar en los tribunales. Sin embargo, hay ocasiones en las que presentar una demanda es tu única opción si tienes alguna intención de recuperar los daños económicos sufridos. Aquí desglosamos con gran detalle todos los elementos de una demanda por incumplimiento de contrato (en California, pero los elementos son relativamente universales). Si la otra parte ha ignorado tu reclamación, ha hecho caso omiso a tu agencia de cobros y parece haber desaparecido, puede que sea el momento de recurrir al poder de una demanda.
Una vez notificada la demanda por incumplimiento de contrato (o cualquier otra demanda), la otra parte debe responder en un plazo determinado o se dictará una sentencia en rebeldía. Si se obtiene una sentencia en rebeldía, se puede proceder al embargo y la incautación de los bienes muebles e inmuebles pertenecientes al deudor judicial. Si el deudor judicial es una empresa, esto incluye bienes inmuebles, equipos, derechos de arrendamiento, existencias, etc. Si el deudor judicial es una persona física (o quizá una persona física que haya avalado el contrato incumplido), se pueden embargar bienes muebles e incluso retener el salario en virtud de dicha sentencia.
The lawsuit is the ultimate power tool to get someone's attention, and the ultimate hammer to really make them hurt financially. The filing of the lawsuit could even hasten settlement negotiations more so than a demand letter or a threatening call from a collections agency.
¿Tienen alguna importancia las autoridades reguladoras en el ámbito de las colecciones de cannabis?
The short answer is typically no. Failing to pay bills when due (other than tax) usually isn't going to amount to an actionable regulatory violation with which you can approach regulators for help. However, in California at least, the state is contemplating the passage of AB 766, which would provide some relief to licensee debtors in these situations (at least after January 1, 2024). The summary of that bill reads:
Salvo que se especifique lo contrario, este proyecto de ley obligaría a los titulares de licencias a pagar los bienes y servicios vendidos o cedidos por otro titular de licencia, cuyo valor total sea de al menos 5 000 dólares, en un plazo máximo de 15 días a partir de la fecha límite indicada en la factura o facturas. El proyecto de ley exigiría que un titular de licencia que haya vendido o transferido bienes a otro titular de licencia y que no haya recibido el pago íntegro 15 días después de la fecha límite establecida en la factura comunique la factura impagada al departamento, según lo especificado. El proyecto de ley obligaría al departamento a notificar al titular de la licencia dicha notificación, a emitir un aviso de advertencia o, a su discreción, a emitir una citación o a iniciar una acción disciplinaria contra el titular de la licencia si este no paga la factura pendiente en su totalidad en un plazo de 30 días tras dicha notificación, según se especifica, y, en caso de incumplimientos reiterados de estas disposiciones, a iniciar una acción disciplinaria, según se especifica. El proyecto de ley prohibiría al titular de la licencia adquirir bienes y servicios a crédito de otro titular de la licencia hasta que haya abonado íntegramente la factura pendiente. El proyecto de ley prohibiría, a efectos de estas disposiciones, que la fecha límite establecida en una factura para el pago de la misma sea posterior a los 30 días naturales a partir de la fecha en que se vendan o transfieran los bienes o servicios. El proyecto de ley especificaría que estas disposiciones no se aplican a las facturas correspondientes a ventas o transferencias realizadas antes del 1 de enero de 2024.
We'll blog more about AB 766 soon, so stay tuned.
Al final
As industry attorneys, we don't want to see cannabis businesses cannibalize each other. At the same time, businesses need to honor their agreements or plan accordingly in a way that promotes settlement and continued performance without leaving anyone empty handed. We know it's tough times out there right now, and we sincerely hope that you don't find yourself on either end of cannabis collections.
In the meantime, if you haven't seen it, be sure to watch our law firm webinar about distressed assets in the cannabis industry. We covered receivership, bankruptcy (or lack thereof), assignments for the benefit of creditors, and secured interests. And don't skip the follow-up takeaways either.
