Cracking the Code: Solving Cannabis Credit & Collections with John Manlove
In this engaging episode of the #UOWEME Series, Brett Gelfand sits down with John Manlove, founder and CEO of Apex Trading, to discuss the critical issues surrounding accounts receivable and collections in the cannabis industry. With over a decade of experience in cannabis technology and marketplace solutions, Manlove offers valuable insights into how the industry can better manage credit risk and improve collection practices.
From Traded to Apex: Evolution in Cannabis Tech
Manlove's journey in cannabis began in 2014 when he joined Traded as its first employee, helping develop one of the first B2B marketplaces in the cannabis industry. After learning valuable lessons from that venture, he co-founded Apex Trading in 2018 with a refined vision for supporting wholesale cannabis operators. Today, Apex operates in 19 states and facilitates nearly a billion dollars in wholesale transactions annually.
The Root of the Collections Crisis
The podcast discussion reveals how the industry's accounts receivable problems often emerge around the two-year mark in new markets. As Manlove explains, "When there's a ton of demand, more than supply, cash flow is strong. Retailers tend to be able to pay COD or pay properly because they need the product." However, the dynamics shift dramatically when markets become oversaturated.
"The moment you start to have oversupply in the market, the dynamics change. The buyer holds the power," Manlove notes. This power shift leads to buyers demanding extended payment terms and often stretching payment windows from 30 to 60 days without penalties. This behavior creates a snowball effect, empowering buyers to take advantage of the situation while leaving wholesalers struggling with cash flow.
The Oversupply Challenge
The conversation delves into the root causes of market oversupply, with Manlove pointing to several key factors:
Poor State Planning: Most states haven't effectively forecasted demand or properly structured licensing. They either maintain limited licenses (often influenced by MSOs) or adopt a completely free market approach without considering market sustainability.
Inaccurate Demand Signals: Retailers often over-purchase inventory, creating false demand signals that propagate up the supply chain to cultivators, leading to overproduction.
Scaling Challenges: When markets are performing well, companies often expand operations simultaneously, creating a surge in supply that coincides with new market entrants.
Technology Solutions and Best Practices
Apex Trading has developed several features to help companies manage credit risk, including:
AR holds within their CRM system
Integrated payment solutions like ACH
Workflow management tools
Task management systems
User permissions and controls
However, Manlove emphasizes that technology alone isn't the solution. "Apex isn't going to solve the AR problem," he states. "What we can do is connect to and leverage a community, a network that's trusted to allow reporting and create more transparency in the market."
The Importance of Financial Leadership
One of the most compelling segments of the discussion focuses on the critical role of financial leadership in cannabis companies. Manlove shares his own experience of bringing on a VP of Finance, which he credits with dramatically improving his company's performance.
"Behind every good business that's operationally excellent and profitable is a really good finance person," Manlove emphasizes. He suggests that even companies with tight budgets should consider fractional CFOs or offering equity to attract financial talent, as the strategic value they bring is essential for long-term success.
Key financial leadership benefits include:
Improved forecasting and planning
- Better cost accounting and analysis
Strategic cash flow management
Proper revenue recognition (accrual vs. cash basis)
Enhanced decision-making capabilities
Building Better Credit Practices
The discussion highlights the importance of establishing clear credit policies from the beginning of business relationships. Manlove suggests a graduated approach to extending credit:
Start with COD orders
Progress to 14-day terms
Move to 30-day terms
Consider 45-day terms for reliable payers
Maximum terms of 60 days based on cash flow needs
"The best brands, the ones that are successful right now, especially with collections, are the ones that started at the beginning, enforcing it and creating the behavior with the buyer," Manlove explains.
Looking Ahead: Industry Trends and Solutions
When discussing the future of the cannabis industry, Manlove identifies several key areas to watch:
The impact of the next presidential administration on cannabis policy
Continued state-by-state legalization
Potential rescheduling effects on banking and taxation
The convergence of hemp and cannabis markets
Enhanced data analytics and inventory insights
Apex Trading is launching new features to help clients better manage their businesses, including stock level insights that will provide real-time inventory and sell-through velocity data at retail locations. The company's approach to data analytics focuses on making information actionable rather than overwhelming.
Creating Industry Standards
The conversation concludes with a discussion about potential industry-wide solutions to the collections crisis. Manlove suggests that improvement will require:
Industry-wide acknowledgment of the AR problem
Collaboration between regulators, producers, and retailers
Agreement on acceptable AR levels and terms
Unified consequences for payment defaults
Better data sharing and transparency
Final Thoughts
The podcast highlights how the cannabis industry's credit and collections challenges require a multi-faceted solution combining technology, financial expertise, and industry cooperation. As the market matures, companies must establish strong financial practices, leverage available tools and data, and work together to create more sustainable business relationships.
As Manlove aptly puts it, "The more transparent the market is, the more people hold each other accountable." This transparency, combined with proper financial management and industry collaboration, will be key to addressing the industry's ongoing collections challenges and creating a more stable marketplace for all participants.
Through conversations like this one in the #UOWEME Series, the Cannabis Collection Agency continues to shed light on these critical issues while working to develop practical solutions for the industry's credit and collections challenges.