In contemporary times, it's disheartening to observe a landscape where regulations proliferate while integrity seemingly dwindles. This phenomenon appears particularly pronounced within a segment of the California cannabis sector. A recent viral video captured dispensary proprietors boasting about their financial gains from neglecting payments to smaller, independent vendors.
(You can watch the full video on LinkedIn here)
In one exchange, an owner expressed satisfaction at the savings accrued by avoiding payments to struggling "mom-and-pop" businesses. "You know what’s so cool," the owner remarked, "How much money we’ve saved by not paying the vendors that have gone out of business…I’m talking about these mom-and-pop brands that come and go.”
This instance likely represents just one facet of a broader issue. To delve deeper into the state of affairs within the California cannabis realm, Benzinga sought insights from the founders of Stone Road. Operating a farm in Northern California with operations spanning five states, Stone Road has experienced significant financial setbacks, having been denied payment totaling tens of thousands of dollars.
Lex Corwin, Stone Road’s CEO and co-founder, shed light on the circumstances surrounding the demise of numerous small-scale enterprises. He attributed their downfall to retailers withholding payments for extended periods, often exceeding 100 days, thereby driving these enterprises into bankruptcy, or the term "dankrupt" as the cannabis industry calls it.
Corwin recently took to social media to share his company's plight, highlighting a paradox wherein illicit operations demonstrate greater integrity compared to legal entities. He elucidated that while legal retailers may delay payments for up to 200 days, participants in the illicit market typically settle transactions immediately.
This video cut the cannabis industry deeply because it violated human trust and a sense of "teamwork" among smaller operators as they try to navigate an already tough industry. While the violators may try to distract and lay blame on the illicit market, their actions, human to human, business to business, are despicable and when repeated over and over, destroy businesses and lives.
If the cannabis industry small-operators cannot trust each other to be good, honest people, then how do you expect to compete with much lager MSOs and corporate cannabis companies? Greed ends up hurting everyone involved, those small mom-and-pop vendors relied on untrustworthy and people with poor character and got burned.
The cannabis industry used to rally and lift each other up, now some are scheming to destroy each other just to make an extra buck.
Norman Yousif is a disgrace to the cannabis industry, and an embarrassment to his family. I wonder what line of excuses he would give his mother or father after watching his video. I wonder what kind of shame they feel watching their son?
Revisiting a Familiar Issue
In a recent interview, he expressed a sense of frustration, likening the discussion to "beating a dead horse," given the frequency with which it occupies his conversations. He straightforwardly identified some retailers' reluctance to meet their financial obligations as the foremost obstacle to fostering a robust industry.
But how did this predicament come to pass? What factors contributed to this tumultuous state of affairs?
According to Corwin, three primary factors are at play. "Firstly," he explained, "unethical practices abound, with certain entities leveraging credit terms across multiple brands to fuel their expansion endeavors—a behavior that not only lacks integrity but also warrants legal scrutiny." "Secondly," he continued, "certain regions suffer from a saturation of dispensaries, exemplified by Santa Rosa's abundance of over 30 legal establishments attempting to serve a population of 170,000, while larger urban areas like Bakersfield and Irvine lack legal options altogether." "Lastly," he emphasized, "excessive taxation burdens weigh heavily on retailers, with state and local taxes accounting for over 25% of gross revenue."
Sabrina Wheeler, Stone Road's COO, highlighted the lack of alternatives in the illicit market, where credit terms have never been a consideration. Both Wheeler and Corwin adamantly discourage patronizing illicit sources, underscoring the absence of product testing therein. Wheeler further noted that despite the risks of legal repercussions for tax evasion faced by illegal operators, many consumers find legal, tested, and taxed cannabis financially unattainable.
Corwin emphasized that substantive progress on this issue hinges on legislative action. "Ultimately," he argued, "the implementation of credit laws is imperative, as even prominent retail chains in California persist in chronic non-payment."
The Demise of a Delivery Titan
In November of last year, Grassdoor, a prominent marijuana delivery service based in California, ceased operations, leaving several businesses, including Stone Road, in debt.
"In light of the closure of one of our major clients, Grassdoor, and the substantial debts owed to hard-working farmers, brands, manufacturers, and others, it's truly disheartening to persevere," wrote Corwin in a social media post.
Had Stone Road received any communication from Grassdoor?
"We have yet to receive any communication from the Grassdoor team expressing remorse for this situation, which is disappointing," Corwin informed Benzinga. "Instead, we've been contacted by the receiver overseeing their liquidation, though the timeline for repayment, if any, remains uncertain. It appears that significant financial mismanagement contributed to their downfall, as they continued to acquire competitors while accumulating substantial unpaid invoices."
Corwin emphasized, "The market's structure is fundamentally flawed," attributing part of the issue to excessive taxation.
Wheeler observed that Grassdoor seemed to have an excessive workforce. "At one point, they had three purchasing managers. In times of turmoil, a lean and resilient team is crucial. Everyone must be adaptable. Speaking from experience, Lex and I operate as a two-person team with no full-time employees besides our farm crew. We oversee every aspect from cultivation to sales, which is essential. Like many others, we face financial constraints, yet we've never failed to compensate anyone."
No Remorse, Just Passion for Diligent and Ethical Endeavors
Despite the tumultuous climate, neither Corwin nor Wheeler harbor regrets about venturing into the cannabis industry.
"While navigating this industry has proven exceptionally challenging over the past six years, I remain steadfast in my commitment," asserted Wheeler. "They say diamonds are forged under pressure, and I firmly believe that by weathering these trials, adapting strategically, and maintaining ethical standards, we position ourselves as an attractive prospect for corporate acquisition once cannabis achieves federal legalization."
Corwin echoed her sentiments, emphasizing that every adversity serves as a valuable lesson. Despite the industry's rigors, he stressed the importance of fully embracing this audacious experiment. "Finding joy in your work is paramount," he remarked. "I derive immense satisfaction from my work and deal-making; I couldn't envision myself pursuing anything else. Over the next two years, anticipate our expansion across California and our foray into at least three new states."
For Wheeler, alongside passion, discipline stands as the cornerstone for persisting in the arduous yet principled journey, ensuring that moral integrity remains unwavering.
Bottom Line
The cannabis industry in California faces significant challenges, including unethical practices, oversaturation of dispensaries, and excessive taxation burdens. Recent revelations of dispensary owners bragging about avoiding payments to vendors underscore the need for regulatory reform and ethical accountability within the sector. Despite these obstacles, companies like Stone Road remain committed to integrity and perseverance, advocating for legislative action to address systemic issues. Moving forward, fostering a transparent and equitable marketplace will be crucial for the long-term sustainability and growth of the cannabis industry in California.
BAD ACTORS ABOUND IN CANNABIS, READ ON...
