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Trade credit: the Achilles heel of legal cannabis market

The cannabis industry is eyeing its next big goal – federal legalization. It would take some time for the industry to get its big breakthrough. In the meanwhile, it has to focus on one of its biggest problems- cash.

The cash problem of the cannabis industry

Regulatory issues and a myriad of laws that still curtail the growth of cannabis have made cash the king of the industry. The dominant transaction method rules all short- and medium-term settlements. Given the complexities of B2B transactions, moving funds from buyers to distributors becomes difficult.

According to Doug Gordon, head of LeafLink Financial, the regulatory complexities of the cannabis industry fuel its struggle with payments.

Gordon suggests that the cannabis industry is a cradle for startups, providing agility and efficiency. These companies do not carry the weight of legacy technologies and old processes like their counterparts in other industries. At the same time, the cannabis supply chain suffers from a lack of cannabis-specific technologies.

The legal complexities on the state and federal levels bring friction to B2B transactions. The fragment accounts receivables (AR) and accounts payable (AP) processes depend largely on cash. A growing number of businesses depend on paper checks to settle transactions. Both are inefficient means of payment. The traditional hurdles of invoice processing, reconciliation, and cash flow management continue to hound cannabis businesses.

Gordon commented, “All of these issues exist in the traditional economy, but all of them are on steroids in the legal cannabis economy because of the lack of access to tools and services traditionally offered through banks.”

How does Trade Credit help?

The absence of trade credit in the B2B cannabis supply chain creates huge hurdles in the industry’s growth. As startups populate the industry, they lack historical business data, making underwriting difficult. Companies cannot decide the creditworthiness of their customers, describe their terms and their limits.

LeafLink Financial is positioning itself as a solution to the trade credit in the cannabis industry. It connects buyers and vendors while absorbing trade credit risk. Gordon hopes for the federal legalization of cannabis and the eventual inflow of credit cards into the industry. However, he believes it will still be a long way to reach this trade credit utopia.

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Jonathan Sanders

Jonathan is a business writer and a dedicated cannabis enthusiast from Chicago, IL. He is mainly focused on cannabis business news and retail news from around the world.

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