On April 20, my colleague Hilary Bricken wrote a publish entitled, “Hashish Collections Complications and What to Do.” In it, she mentioned an issue that’s been plaguing California hashish companies all through: distributors and retailers that don’t pay their payments. In the direction of the tip of the article, she talked about a bit of proposed laws to deal with the issue, AB 766, which might permit – and even require – the state to police hashish contracts. Whereas I’m in favor of arising with methods to repair the established order, this isn’t it. If handed, AB 766 would for my part result in large issues, each for licensees and the state. Let’s unpack.
What AB 766 would do
AB 766 would apply solely to gross sales made after January 1, 2024. It could require any licensee to pay for items and providers from one other licensee inside 15 calendar days after the date of the ultimate bill. The date set forth on the bill couldn’t be greater than 30 days after the date items or providers are transferred. So hypothetically, if a hashish contract has web 30 cost phrases and is paid 46 days after supply, issues start.
Licensees that promote items with a price of a minimum of $5,000 and don’t obtain cost on time should report the unpaid bill to the Division of Hashish Management (DCC). At the moment, the DCC is compelled to intervene within the hashish contract breach. DCC should then notify the non-paying licensee. In the event that they don’t pay inside 30 days, the DCC can situation a discover of warning or quotation. If this occurs a number of instances, the DCC should start a disciplinary motion.
Notably, if a licensee is reported, it can’t purchase items on credit score from one other licensee till it pays the preliminary unpaid bill.
AB 766 additionally doesn’t apply to excise tax assortment.
Why AB 766 is a nasty concept
I wish to begin this part out by noting, in no unsure phrases, that violations of hashish contracts are unhealthy. There are many licensees that merely skip city on invoices for no good purpose. It goes with out saying that not paying undisputed invoices is a nasty factor. However I don’t suppose that AB 766 will make an enormous dent in the issue and as an alternative may create much more issues.
First off, AB 766 does way more than inform licensees to pay on time – it as an alternative units the requirement for what “on time” may even imply. I’ve seen loads of hashish contracts with absolutely negotiated cost phrases that may violate AB 766. If AB 766 turns into regulation, it should imply that the federal government dictates business contact cost phrases.
AB 766 would additionally pressure licensees to report different licensees that haven’t absolutely paid excellent invoices. Reporting can be necessary. It could apply even when the opposite social gathering was only a few hundred {dollars} quick. It’s inevitable that licensees is not going to report each violation. Would they then be topic to potential self-discipline? It positive looks like it. I can’t let you know how a lot more durable will probably be to settle cost disputes as soon as one facet has reported the opposite to the state. I can entertain an argument that licensees needs to be free to report one another, however requiring reporting of contract breaches is completely indefensible.
Most egregiously, licensees who’re reported can be legally prohibited from shopping for items or providers on credit score from different licensees till they pay the invoices for which they have been reported in full. All that has to occur is {that a} licensee is reported. The individual making the report has to provide the DCC virtually no info with the intention to make the report. There isn’t a listening to. There doesn’t even appear to be a chance to contest the report. The second a report is made, the opposite facet loses its rights to purchase items on credit score – presumably even below preexisting contractual preparations with third events. This looks like an apparent due course of concern and ripe for abuse.
Alongside these strains, AB 766 doesn’t even actually handle what occurs within the occasion of a disputed bill. What if XYZ retailer doesn’t pay ABC as a result of the products XYZ purchased have been moldy? Effectively, it seems to be like ABC would nonetheless must report it. Once more, this is not sensible.
Tips on how to repair AB 766
I don’t suppose AB 766 will remedy the issue at hand. As a substitute, it’s prone to result in larger issues. It appears inevitable that individuals will probably be punished for issues like failure to report, that licensees will probably be topic to penalties after they have respectable grounds to dispute cost, and so forth. The invoice would additionally probably lavatory down the DCC with experiences. And given the state’s spotty historical past with hashish enforcement, it’s totally doable that a lot of these experiences wouldn’t even be well timed addressed.
Relatively than create an excessively sophisticated and necessary reporting system, it might be a lot easier if the state may create a statutory proper to recuperate attorneys’ charges in actions between licensees. Many licensees nonetheless do “handshake” contracts (nonetheless a nasty concept!) with restricted or no rights to recuperate attorneys’ charges. Add charges into the combo and also you give unpaid licensees a significant device to combat again.
If the state decides to implement a reporting system in any case, then AB 766 needs to be overhauled in order that (1) reporting is elective, (2) licensees can set their very own cost phrases with out the state’s enter, and (3) non-paying licensees don’t get stripped of any rights till they’ve a chance for some form of listening to. If the state gained’t try this, then there will probably be issues. Keep tuned to the Canna Law Blog for extra updates.