This California Bill Would Mandate Punishment of Marijuana Debtors Without a Hearing

California’s cannabis industry, which includes state-licensed growers, manufacturers, testing companies, distributors, retailers, and event organizers, has a deadbeat problem. In a business that generated $5.3 billion in sales last year, bills for marijuana products and services frequently go unpaid, leaving creditors in the lurch and compounding the financial difficulties created by federal prohibition.

According to an estimate cited by Assembly Member Phil Ting (D–San Francisco), “the unpaid debt bubble is over $600 million across California’s supply chain.” But Ting’s solution—a bill that would inject state regulators into debt disputes between marijuana businesses—could create new problems by interfering with freedom of contract and penalizing licensees without due process.

A.B. 766, which Ting introduced in March, would require cannabis licensees to pay bills for goods or services totaling $5,000 or more within 15 days of the final date listed on the invoice. That date could be no more than 30 days after the goods were delivered or the services were performed.

When a buyer misses that state-prescribed deadline, the seller would be required to file a report with the California Department of Cannabis Control (DCC). The DCC would then be required to notify the buyer of the violation and “commence a disciplinary action,” which could lead to suspension or revocation of his license if he fails to “pay the outstanding invoice in full” within 30 days of the notice. In the meantime, the buyer would not be allowed to “purchase goods or services from another licensee on credit.”

Griffen Thorne, an attorney at the Los Angeles office of Harris Bricken, a firm that specializes in cannabis law, says the problem that Ting describes is real. But Thorne is troubled by the implications of dictating contract terms, requiring businesses to report collection issues, and imposing a penalty based on nothing more than a report, which might be based on disputed facts.

Under A.B. 766, a business would no longer be free to set the terms of a transaction. In particular, the bill defines what it means to be unacceptably late in paying an invoice. “I have seen plenty of cannabis contracts with fully negotiated payment terms that might violate AB 766,” Thorne writes on Harris Bricken’s blog. “If AB 766 becomes law, it will mean that the government dictates commercial [contract] payment terms.”

The bill would make reporting of unpaid debts mandatory. “It is inevitable that licensees will not report every violation,” Thorne writes. “Would they then be subject to potential discipline? It sure seems like it. I can’t tell you how much harder it will be to settle payment disputes once one side has reported the other to the state. I can entertain an argument that licensees should be free to report each other, but requiring reporting of contract breaches is totally indefensible