Mastering Credit Risk in Cannabis Packaging - A talk with John Arriola from Custom Cones USA
Welcome to the second episode of the #UOWEME Podcast Series by The Cannabiz Credit Association (CCA), where we dive into the complex yet critical world of cannabis credit and collections. This series is dedicated to fostering meaningful discussions with industry leaders, equipping cannabis operators with strategies to tackle one of the biggest challenges in the industry—managing credit risk and accounts receivable (AR). Each episode offers exclusive insights from experts who have navigated these turbulent waters, providing tools to strengthen your business’s financial foundation.
In this episode, CCA Principal Brett Gelfand sits down with John Arriola, VP of Sales at Custom Cones USA, to explore the unique credit and collection challenges faced by cannabis packaging companies. With years of experience managing a sales team and navigating the nuances of custom manufacturing, John offers a behind-the-scenes look at how Custom Cones has built a robust credit process to minimize risk while serving a growing client base.
From College to Cannabis Packaging
John’s journey into the cannabis industry started during his college years when he co-founded a cannabis symposium with MBA students at Babson College. His early interest in the industry paved the way for his eventual role at Custom Cones, where he joined as part of a three-person team. Over the past five years, he has witnessed exponential growth, both in the cannabis industry and within his company.
Today, Custom Cones operates out of a 26,000-square-foot facility and serves clients across the country. As VP of Sales, John leads a team of eight sales reps, manages customer service escalations, and works directly with distributors. His experience offers a wealth of insights into how to scale a cannabis-focused business while managing the financial risks inherent in the industry.
Building a Bulletproof Credit Process
One of the highlights of the episode is John’s description of how Custom Cones has built an airtight credit and collection process. In the early days, sales reps were responsible for everything—from extending credit to chasing down late payments. This created inefficiencies and strained customer relationships. Recognizing the need for change, the company implemented a formalized system:
Credit Applications: Every new client requesting terms must complete a credit application, which is then reviewed by the accounting team.
Pre-Terms Requirements: Clients must place at least three prepaid orders exceeding $3,000 before being considered for terms.
Starting Small: Custom Cones typically begins with a $5,000 credit limit and net 15 terms, expanding only after a proven payment track record.
Sales-Accounting Collaboration: The accounting team handles collections and AR management, while sales focuses on building client relationships and driving new business.
John emphasizes the importance of separating sales and AR responsibilities to maintain efficiency. This division allows the sales team to focus on customer service without getting bogged down in collections.
Lessons Learned: When It’s Time to Adapt
John shares key moments that shaped Custom Cones’ approach to credit and collections. Early on, delays in responding to credit requests led to customer dissatisfaction, as cannabis operators often operate on tight schedules. By introducing a dedicated accounting team, the company not only streamlined its credit review process but also avoided critical losses, such as unpaid invoices from companies that later filed for bankruptcy.
One particularly striking story involved a client who defaulted on a past invoice, only to return years later with a new sales rep and a large order request. Thanks to meticulous record-keeping, Custom Cones flagged the account and avoided a potential repeat loss. This underscores the importance of having strong systems in place to track customer history and prevent bad actors from slipping through the cracks.
Navigating Big Risks with Big Clients
The cannabis industry is filled with high-stakes scenarios where businesses must weigh the risks and rewards of working with large clients. For John, managing relationships with multi-state operators (MSOs) and licensed producers in Canada often involves negotiating extended terms. While these clients bring significant revenue, they also pose higher risks, particularly when their own cash flow depends on delayed payments from dispensaries.
To mitigate risk, Custom Cones employs creative strategies, such as requiring reduced deposits (e.g., 20% instead of the standard 50%) for custom orders or offering terms only on certain product lines. This flexibility allows the company to maintain relationships with major clients without overextending itself financially.
The Power of Data-Driven Decisions
John highlights the pivotal role of data in driving business decisions at Custom Cones. By analyzing industry trends and sales data through platforms like Headset, the company stays ahead of emerging market shifts. For example, infused pre-rolls with ceramic or glass tips are rapidly gaining popularity in mature markets like California, and Custom Cones has positioned itself as a go-to supplier for these high-demand products.
John encourages cannabis operators to invest in data tools and resources to better understand market dynamics. He also underscores the importance of using credit data platforms like CCA to screen potential clients and flag risks before extending terms.
Differentiation as a Competitive Edge
For cannabis brands looking to improve their credit and cash flow management, John stresses the importance of offering unique, high-quality products. Having a standout product can shift the balance of power in negotiations with dispensaries, making them more likely to pay on time to secure inventory.
Custom Cones supports its clients by providing cutting-edge packaging solutions, such as flavor bead cones, ceramic tips, and custom blunt wraps. These products not only enhance the consumer experience but also help brands build stronger relationships with retailers.
The Future of Cannabis and Custom Cones
Looking ahead, John sees the cannabis industry evolving into a hybrid of craft and corporate markets, similar to the wine industry. While MSOs may dominate certain segments, there will always be room for craft growers and producers who focus on quality and innovation. He also anticipates significant growth in emerging markets like New York, Florida, and Texas.
For Custom Cones, the future includes expanding its operations to the East Coast and the South, ensuring faster shipping times and stronger regional relationships. With plans to establish new warehouses and continue innovating in the pre-roll category, the company is well-positioned to support the next wave of cannabis industry growth.
Takeaways from this episode
This episode of #UOWEME offers valuable lessons for cannabis operators navigating credit challenges:
Separate Sales and AR Duties: Allow your sales team to focus on building relationships, while a dedicated accounting team handles collections.
Start Small with Credit Limits: Begin with modest terms and expand only after proving payment reliability.
Use Data to Drive Decisions: Invest in tools that provide market insights and creditworthiness data to reduce risk.
Differentiate Your Offering: Unique products can give you leverage in credit negotiations and improve your chances of getting paid.
To dive deeper into the conversation and gain access to exclusive insights, join The Cannabiz Credit Association. Members can listen to the full episode and tap into resources designed to strengthen their financial foundations in this challenging industry.
This #UOWEME episode is packed with actionable advice for cannabis businesses. Don’t miss out on future episodes—become a CCA member today and unlock the full potential of these industry-leading discussions.