California Cannabis Debt: How to Avoid Financial Ruin

The California cannabis market faces a growing debt problem fueled by a unique set of circumstances.

Regulatory and Tax Burdens on the Cannabis Industry

It’s not cheap to start a cannabis business in California. Companies across all stages of the supply chain face an application fee, which can rise to over $8,000, and an annual license cost, which can reach an astounding $185,000, depending on the business type, paid to the California Department of Cannabis Control. But the costs don’t stop there, with the usual business costs of rent, insurance, inventory, and technology quickly adding up.

Statewide, cannabis retailers pay an additional 15% excise tax on gross receipts. Counties and cities may also levy their own taxes on cannabis businesses: in Inyo County, all “commercial marijuana businesses” must pay 5% on gross receipts. But these taxes can compound: in Sonoma County, there is a 10% tax on cannabis businesses. Cloverdale, a city in the county, has an additional 10% on gross receipts, meaning adult-use cannabis sales here face an astounding 20% tax from the city and county.

Regulations in the cannabis industry in California are expensive to adhere to, from the track-and-trace requirements, which necessitate special software, to the cost of packaging and labeling THC products correctly. These regulations are subject to change, leaving businesses with thousands of dollars in non-compliant packaging.

Legal Cannabis Market Dynamics

As one of the oldest recreational markets in the country and the single biggest cannabis market in the world, California cannabis is crowded. It is the NYC of the US cannabis industry — if you can make it here, you can make it anywhere. The intense competition and low prices of cannabis products make it challenging for businesses to achieve profitability. Wholesale prices continue to drop, closing the gap in profitability for businesses with what consumers are willing to pay.

Additionally, the continued federal prohibition of cannabis creates limited banking options for plant-touching companies, and many are relying on debt financing to grow their companies. But in the absence of being able to pay this loan, companies face two options: restructure or shutter. Some companies continue to bank on rescheduling and the removal of 280E, but movement from the DEA is unexpected anytime soon.

Operational Inefficiencies

California is known for having rent higher than the national average, and while this isn’t true for every city in the state, it is true for many. There are some fixed costs that come with running a cannabis company, and rent is one of them. While there are some steps businesses can take to manage their energy costs efficiently, growing cannabis can be an energy-intensive process. The cost of security systems and security staff adds up quickly, and volatility in the supply chain can cause prices to rise, bringing unexpected costs to cannabis businesses.

Operational inefficiencies in finances can cause problems in the long run as well. Poor financial planning and lax operational management can lead to financial issues and debt problems down the line, as is true for the following companies.

To understand financial distress, let’s examine specific real-world examples.

Bankrupt: Unrivaled Brands

California-based Unrivaled Brands, a subbrand of Blum Holdings, was once a staple of the California medical cannabis market, with brands like Korova that had high-potency edibles for medical use. But after recreational use legalization changed the allowed potency limit in edibles, the company began to struggle and total cannabis sales declined.

A breach of contract lawsuit was filed in July 2022 by a distillate vape cartridge manufacturer who claimed Unrivaled owed them nearly $15 million. In court documents filed in January 2025, it was revealed that Unrivaled was actually $37 million underwater, with nearly $800,000 in back taxes owed to the state of California and Orange County and outstanding debts to many other companies in excess of $13 million.

In February of 2025, Unrivaled reached a deal to settle litigation with creditors as part of their bankruptcy proceedings, including the distillate vape manufacturer. At the time of publication, it was unclear exactly how much the manufacturer was able to recoup.

Debt Restructuring: Standard Wellness

Ohio-based MSO Standard Wellness has incurred debt while expanding operations across the country, as many multi-state operators do. In April 2025, the company, which has locations in Ohio, Missouri, Utah, and Maryland, announced it has secured $14 million from a publicly traded institutional lender for cannabis companies, Advanced Flower Capital to “meet existing obligations” and “payment of a seller note” as well as finance a new dispensary purchase in Utah. This comes on the heels of another $10 million credit line, extended in December 2024, that Standard Wellness indicated would go to replay “higher cost debts.”

Outstanding Debt: Shops Across California

California cannabis companies are struggling across the board, and one of the places that it is most evident is in outstanding taxes to the state. Currently, cannabis businesses across the state combined owe nearly $1.3 billion in taxes. Factors that go into this include the low cost of cannabis products, rising costs of running a business, the additional burden of paying 280E taxes, and the fines that California applies to cannabis businesses who don’t pay on time: a 50% penalty, rather than the standard 10% that most companies in other industries pay. This tax and fee administration is responsible for most of the outstanding debt. Rising taxes on cannabis products and companies continue to compound this problem.

There are many factors that are outside of your control as a business owner. One of the biggest keys to success, both in business and in life, is focusing on what you can control. While the cannabis industry is likely to remain turbulent, there are steps you can take to minimize your financial risk.

Financial Planning and Forecasting Cannabis Sales

Good financial planning is everything in business, but especially in cannabis, where prices can fluctuate suddenly and the supply chain can change in a moment. Accurate budgeting is foundational to good financial planning. A budget should be realistic and even go so far as to be conservative in your projections to account for all of your costs and potential fluctuations in revenue. Your financial projections should also be conservative. While many companies want and can achieve large amounts of growth, conservative financial planning helps your business stand steady through potential challenges and changing financial needs.

Cash flow management is also important for cannabis businesses because sometimes, other companies don’t pay their bills on time. As frustrating as that is, managing cash flow effectively can help you weather these storms. Meticulous inventory control and accounts receivable management go a long way toward managing your cash flow well. Expense reduction, wherever possible, is also important — ask yourself what could be automated in your business that currently isn’t.

Operational Efficiency

Operational efficiency goes hand in hand with expense reduction. The cost of operational inefficiencies adds up quickly, and identifying areas of improvement can save your business money in the long run. Consider: what processes are currently done by hand or manually that can be streamlined or automated? Where can you use technological advances to improve efficiency and save money?

If your business is plant-touching, how are you managing your energy consumption? Is it automated, or can it be automated? For all types of cannabis businesses, consider when the last time you negotiated your vendor contracts was — and how much money you could recoup every month if you did so.

Using technology to automate processes works for businesses across the cannabis supply chain. Automating your inventory management can help you minimize waste and storage costs, and save on labor for inventory. Distribution businesses can automate recurring orders, while manufacturers can take advantage of the technological leaps the industry has seen recently to reduce overhead and labor costs. Don’t be afraid to get creative here — flexible businesses are the strongest.

Debt Management

When running a business, taking on debt can be inevitable. Managing it well is key. While outside lending can be a huge boost for a growing business, it’s important to approach debt responsibly, considering all the factors like interest rates, repayment terms, and your ability to repay the loan.

Before taking on debt, consider alternative financing options. Traditional bank loans are usually the first thought for getting a financial boost, but that’s not the only option for cannabis companies. Can you get access to a loan through private lenders with better terms? If you need to invest in bigger or newer equipment, can you finance it instead of paying outright? In some situations where money is needed quickly, factoring, or the practice of selling off outstanding invoices, may be a better option.

Finally, in the case of financial distress with outstanding debt, explore your options for debt restructuring: you may be able to consolidate your debt, modify the terms of your loan, create a management or settlement plan, or refinance it entirely.

The proper umbrella of insurance coverage can help provide your business and your bottom line with a safety net. There are several insurance policies that it is valuable for every cannabis business, no matter the size or sector of the supply chain, to have:

1. Commercial General Liability Insurance: This policy covers bodily injury, property damage, and advertising injury claims. It’s also called “slip and fall” insurance since it covers any injury on your property. This policy is not cannabis-specific and is vital for all businesses with a storefront or office space to have.
2. Product Liability Insurance: This policy protects against claims arising from product defects, which is vital in the cannabis industry, since all businesses that interact with a product could be named in a product liability lawsuit.
3. Commercial Property Insurance: This policy covers damage to any physical property or equipment in the event of damage, destruction, or theft.
4. Business Interruption Insurance: This policy covers lost income and expenses due to covered events such as property damage.
5. Directors and Officers (D&O) Insurance: For larger companies, this policy protects the personal assets of company leaders from lawsuits.

Every cannabis business has unique needs and thus needs tailored insurance coverage. A general “best practices” umbrella is a good place to start, but is likely to still leave exposures. Working with a cannabis-specific insurance agency ensures that your business is covered from all angles, from typical business risks and unique cannabis exposures.

Insurance is a big piece of protecting your cannabis company, particularly in the rapidly changing California market. It isn’t always easy to find success in the biggest cannabis market in the world, especially in times of financial instability, but innovative and forward-thinking companies prove it can be done.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.