Up In Smoke: California's Largest Pot Distributor Collapses Amid $17 Million In Unpaid Taxes

HERBL, California's largest pot distributor, has completely imploded in a turn of events that's expected to have ripple effects throughout the industry.

In mid-May, as rumors of the company's dire situation swirled, CEO Mike Beaudry insisted “these rumors are categorically not true."

HERBL completely collapsed less than a month later, following in the footsteps of other California cannabis startups like Flow Kana and MedMen.

The company leaves behind $17 million in unpaid taxes, while several smaller pot companies which have been left in the lurch, SFGate reports.

"Mike [Beaudry, HERBL’s CEO] and his team did a really good job of hiding that fact from their own brands… that’s how they kept getting our products," said Ali Jamalian, owner of San Francisco cannabis company Sunset Connect, who claims that HERBL owes him $180,000.

Another CEO, Tyler Kearns of Sacramento-based cannabis company Seven Leaves, said HERBL owes his company $880,000. He says he knew the collapsed distributor was in trouble when he found out in June that they were laying off delivery drivers, and that it was going to be near impossible to get that money back.

"I knew this was going to be the biggest failure in U.S. cannabis history," he told the outlet.

HERBL's role in the California cannabis ecosystem was crucial, acting as a middleman between pot producers and retailers. Its downfall isn't just a bad trip for the company; it's a red flag for the industry, indicating that even the mightiest can fall due to systemic issues.

"I do feel like we’re going to see a significant and material number of closures, up and down the supply chain," said Wesley Hein, president of the Cannabis Distribution Association, who attributes HERBL's failure in part to poor business decisions - particularly its continued reliance on traditional distribution models while pot retailers struggled to pay their bills. He says the collapse also exposes systemic issues in the state's pot industry that will doom other industries - such as overtaxation, competition from unlicensed businesses, and "very excessive and overly burdensome regulations."

He compared the collapse of HERBL to Lehman.

"Lehman Brothers was a century-old firm with 99 profitable years, you would think somebody in all of that would go, ‘Let’s bail them out, let’s put money in.’ But when they looked like they were too risky to invest in, that really signaled something," said Hein.

"This is a story about HERBL, but it’s also a story about every distributor, so there’s still time to fix the system," Hein said, adding "There’s always time to start trying to improve and correct things."

According to Adam Cavanaugh, president of Cannabiz Credit Association, a group that tracks debt and provides credit ratings for cannabis companies, a lack of bankruptcy protections in the industry make it harder for pot companies to get paid if another collapses.

"This lack of access to traditional bankruptcy protections indeed presents more risk for companies doing business with cannabis-related entities, as they may find it more challenging to recover their outstanding debts," he told SFGate in an email, adding that his group has already tracked over $20 million in debt within the California cannabis industry, a "remarkable" 27% increase from 2022.