According to Forbes, “the legal cannabis market was worth an estimated $7.2 billion in 2016 and is projected to grow at a compound annual rate of 17%. Medical marijuana sales are projected to grow from $4.7 billion in 2016 to $13.3 billion in 2020. Adult recreational sales are estimated to jump from $2.6 billion in 2016 to $11.2 billion by 2020.” These estimates, we believe, assume that the banking system will begin treating cannabis businesses like almost every other business and make bank credit available. When this happens, as we are already seeing in the California market, cannabis related business will no longer be primarily operating on a cash basis. You will be extending trade credit on about 90% of your sales and once you reach a certain level of annual revenue, you will need to develop a Credit & Collection Department that will help you manage the second largest asset on your balance sheet – your accounts receivable.
Your emerging business has the potential to grow significantly, but only if you can implement the operational infrastructure and financial controls that are necessary to support your growth. If you, operationally, can’t keep up with your growth you won’t be able to provide the necessary level of customer service and your business may very well fail. Additionally, if you, do not manage the financial aspects of your business by applying best practices that help you manage and control credit risk, your business is also in danger of failing. Your emerging cannabis business needs to start planning now to meet its future demand and the first step is implementing an Accounts Receivable / Credit & Collection Department. This department will manage the entire order to cash process and ensure that credit risk is evaluated properly and that cash flow is optimized.
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