A Michigan cultivation client had $600,000 in net income last year. They also had $85,000 in the bank and $183,000 in bills due in the next 30 days.
Payroll. Tax estimates. Equipment leases. Overhead. All coming due. Less than half the cash to cover it.
The $400,000 sitting in accounts receivable was not theoretical money. It was real revenue, already earned, already on the books—just stuck in someone else’s bank account.
Revenue on your P&L doesn’t pay bills. Cash in your bank account does.
If your cannabis accounts receivable is not running on a structured system, you are leaving tens of thousands—potentially hundreds of thousands—on the table every year.
Why Cannabis AR Is Uniquely Risky
Most industries have friction in collections. Cannabis has structural challenges that amplify exposure:
No credit card processing for large wholesale orders. Payments rely on wires and cash—both slower and manual.
High retailer instability. Oversaturated markets mean dispensaries close unexpectedly. When they do, your AR often disappears with them.
Licensing delays. Retailers hold payments until their own compliance issues are resolved.
Pricing volatility. Market prices drop after agreements are made, creating disputes and delayed payments.
METRC mismatches and missing paperwork. Track-and-trace issues give retailers a legitimate excuse to pause payment.
The result is predictable: thirty-day terms become sixty. Sixty becomes ninety. Ninety becomes a write-off. Meanwhile, payroll runs on schedule regardless of what customers owe you.
The Michigan Cultivator: What the Numbers Actually Looked Like
This client held a Tier 2 license with a 10,000-square-foot canopy. Revenue split: 80% wholesale, 20% direct-to-consumer. On paper, their 2024 numbers looked strong:
- $2.4 million in revenue
- $1.2 million in cost of goods sold
- $600,000 in operating expenses
- $600,000 in net income
But the balance sheet told a different story:
- $400,000 in accounts receivable
- Only $85,000 in cash
- $183,000 in obligations due within 30 days
Even with $600,000 in net income, they could not cover basic operating expenses without first collecting their AR. When we broke down the aging schedule, a significant portion of that $400,000 was already past 90 days—high probability of never being collected.
This is where most cultivators get stuck. They focus on production volume and revenue growth. They ignore the collection system. The result: a balance sheet that looks healthy and a bank account that doesn’t.
We implemented a four-pillar AR management system. Within 90 days:
- AR dropped from $400,000 to $120,000
- Cash increased from $85,000 to $340,000
- Average payment cycle cut in half
- $280,000 collected
Same product. Same customers. No new revenue. Just a system that actually worked.
The Four-Pillar AR System for Cannabis Cultivators
Pillar 1: Write Off Uncollectible Invoices in the Same Year
This is critical in cannabis because of 280E. If you write off bad debt in the same year it was issued, it never counts as taxable revenue. If you wait until the following year, you pay federal taxes on money you never collected.
The key is identifying uncollectible invoices early. Customers that closed, lost licenses, or have not responded in over 120 days should be flagged immediately. Start reviewing your AR aging monthly beginning in Q4—not in December when it’s too late.
For this Michigan client, we identified and wrote off $38,000 in uncollectible invoices before year-end. That move saved them approximately $19,000 in taxes they would have paid on revenue they never received.
Pillar 2: Start Collections Before Invoices Are Due
Most cultivators wait too long. By the time they act, the invoice is already 60-90 days past due and the retailer has mentally deprioritized it.
The solution: a structured collection cadence that starts before the due date.
The cadence we implemented:
- Confirm delivery receipt immediately upon shipment
- Send payment reminder 5 days before due date
- Follow up with a phone call—not an email—within 3 days of the due date passing
- Escalate to senior contact if no response within 7 days past due
Consistency drives results. Most retailers are not refusing to pay. They are prioritizing other vendors. The ones who call are the ones who get paid first.
We assigned a part-time AR specialist to this client at approximately 15 hours per week. Cost: $1,500 per month. Result: $280,000 collected in 90 days.
Pillar 3: No New Orders for Customers with Past-Due Invoices
This is where most operators hesitate. They worry about losing the relationship or the sale. But the math is simple: if a customer will not pay what they already owe, extending more credit only makes the problem worse.
We implemented automatic credit holds on any account with invoices more than 30 days past due. New orders required either clearing the outstanding balance in full or paying cash on delivery.
This single policy prevented over $180,000 in additional AR buildup during the first two months. It also changed the dynamic with slow-paying retailers almost immediately—because now there was a real consequence.
Pillar 4: Resolve Disputes Within 72 Hours
Disputes are common in cannabis wholesale: pricing discrepancies, missing paperwork, delivery variances, METRC mismatches. All create legitimate reasons for retailers to pause payment. The mistake is letting disputes sit unresolved.
Strict internal timeline on every disputed invoice:
- Acknowledge the dispute within 24 hours
- Complete internal investigation within 48 hours
- Reach resolution or offer compromise within 72 hours
Speed matters more than being right. A quick compromise that results in immediate payment is almost always more valuable than winning an argument two months later. Disputes that drag on become write-offs. Disputes resolved in 72 hours become cash.
What Happens When This System Is Running
We have implemented this AR management framework across multiple cultivation clients. One reduced average AR aging from 65 days to just over 20 days and cut bad debt losses by more than 80%. Cash flow became predictable. They could plan inventory purchases, hiring, and expansion decisions with confidence.
That is the real benefit of AR management done right. It is not just accounting. It is control over your own business.
Client Spotlight: Pure UT
Pure UT uses GreenGrowth CPAs services across multiple functions—including active accounts receivable management. Since we became plugged into their operations, they rarely see an invoice age past 30 days.
That benchmark—30 days or less—is what strong AR management looks like in practice. It does not happen by accident. It happens because there is a system, someone owns it, and it runs consistently every week.
What to Do This Week
If you are a cannabis cultivator and you have not reviewed your AR aging report in the past 30 days, start there.
Your action plan:
- Run your AR aging report today. Identify largest outstanding invoices by bucket: 0-30, 31-60, 61-90, and 90+ days.
- Calculate your Days Sales Outstanding (DSO). If it is over 60 days, you have a collection problem.
- Flag any invoices over 90 days for potential write-off before year-end—especially if the customer has gone dark.
- Implement a no-new-orders policy for any customer more than 30 days past due, starting this week.
- Assign clear ownership of AR collection—either internally or outsourced—so one person is responsible for follow-up.
- Commit to resolving all open disputes within 72 hours.
The Michigan cultivator went from $400,000 in AR and $85,000 in cash to $120,000 in AR and $340,000 in cash in 90 days. They did not change their product. They did not acquire new customers. They just collected the money they were already owed.
You can have $600,000 in net income and still run out of cash if your AR is not running on a system. Build the system. Track the metrics. Collect the money.
Ready to fix your AR system?
If your DSO is over 60 days or your cash balance doesn’t reflect your net income, schedule a consultation with GreenGrowth CPAs: https://meetings.hubspot.com/daniel833/blogs
About the Author
Daniel Sabet is CFO and Partner at GreenGrowth CPAs, a cannabis-focused accounting firm serving multi-state operators across CA, NY, NJ, MN, DE, and beyond. Daniel has reviewed financials for over 80 cannabis cultivators and specializes in 280E tax strategy, audit preparation, and CFO infrastructure for cannabis businesses.
LEGAL DISCLAIMER:
This content is for informational purposes only and does not constitute legal, tax, or financial advice. Cannabis regulations and tax treatment vary by state and are subject to change. Consult a licensed CPA or attorney for guidance specific to your business. GreenGrowth CPAs serves cannabis businesses across CA, NY, NJ, MN, DE, and additional markets.
