A licensed cultivator pays for months of payroll, power, inputs, and testing before a harvest can be sold, and then waits again while dispensary buyers pay their invoices. A grow can show a profit on paper and still run short of cash in the weeks between harvests. This column explains why, and how a simple 13-week forecast and clear buyer terms keep the gap from becoming a crisis.

In a cultivation business, you spend money long before you collect it. The rooms run every day. Staff is paid every two weeks, the power bill arrives every month, and nutrients, supplies, and testing all have to be paid for before a single unit ships. Then the product leaves the building, and the business waits again for the buyer to pay.

That is how a grow with healthy margins can find itself unable to make payroll. The profit is real. It is just sitting somewhere other than the bank account.

Inventory is cash that is tied up, not profit already earned

On the books, product is carried at what it cost to produce. Plants in the flower room, product drying and curing, and tested product waiting for a buyer all count as inventory. Every dollar in that figure is a dollar the business has already spent and not yet recovered.

It helps to think of inventory as cash in another form. A room full of plants is a stack of paid payroll and power bills. Until that product is sold and the buyer pays, none of it is available to cover next month’s costs.

Consider a hypothetical indoor grow with 12 employees. It is a composite, not a real company, and every figure here is round and invented to show the arithmetic. Running the facility costs about $80,000 a month: $45,000 for payroll, $15,000 for power, $5,000 for nutrients and supplies, $10,000 for rent, and $5,000 for a loan payment.

One harvest cycle takes five months from the start of the grow to cured, packaged product. Testing costs $8,000 in the fifth month. The harvest sells to dispensaries in month six for $480,000. Half the buyers pay on net 30, so their money arrives in month seven. The other half pay on net 60, so their money arrives in month eight.

Table 1. Cash position for one hypothetical harvest cycle

The harvest earns $72,000 over its costs. But for two full months, the business has $408,000 tied up in it, and it doesn’t see that money back until month eight. A grow running overlapping cycles, with a new room starting every few weeks, carries several of these holes at once.

On the income statement, the profit shows up when the product is sold. In the bank, it shows up two months later. If anything slips, such as a failed test, a delayed sale, or a slow buyer, the hole gets deeper and lasts longer.

Build a 13-week cash forecast around harvests and invoice terms

The tool for seeing this coming is a 13-week cash forecast. It covers one quarter, week by week, and it has four lines.

Starting cash is what is in the bank at the start of the week. Cash in is what you will actually receive that week, based on when invoices are paid, not when the product ships. Cash out is every payment due that week: payroll, power, inputs, testing, rent, and loan payments, each in the week it is actually paid. Ending cash is starting cash plus cash in, minus cash out. It becomes the next week’s starting cash.

The value comes from lining up two calendars that usually live in different places. One is the harvest calendar, which says when each room will produce sellable product. The other is the payment calendar, which says when each buyer will actually pay. Put them side by side, and a short month shows up weeks before it arrives.

In the example, a forecast built in month four would show the cash low arriving in months five and six. That leaves time to act, whether by pulling forward a sale, chasing a past-due invoice, or lining up short-term cover. A forecast built in month six only confirms what the bank balance already says.

The forecast is only as good as its assumptions, so it is worth updating every week. Replace estimates with what actually came in and went out, roll it forward a week, and look again at the lowest balance in the quarter.

Set terms and credit limits so the grow is not financing its buyers

Every day a buyer takes to pay is a day the grow is financing that buyer’s inventory. Payment terms are one of the few parts of the cycle an operator can change directly. The options below each carry trade-offs with buyers and competitors, so they are choices to weigh rather than rules.

Shorter terms or deposits for new accounts limit the risk while a relationship is new. A buyer with a track record can earn longer terms over time.

A credit limit per buyer caps how much any one account can owe at once. It keeps a single slow payer from tying up a large share of a harvest.

Holding new orders when a buyer is past due is the simplest way to stop a problem from growing. It is easier to apply consistently if it is written into the terms from the start.

A small early-payment incentive can bring money in sooner. In the example, if the net 60 buyers paid in 30 days instead, the harvest would climb out of its hole a month earlier. Any incentive has a cost, so it is worth comparing it with the cost of carrying the unpaid balance. How terms are written into agreements is a question to check with your accountant or attorney.

Before each harvest, run these:

• The date the product will be ready to sell, and the buyers lined up for it.
• Each buyer’s payment terms and how long they have actually taken to pay recently.
• The 13-week forecast, updated with the harvest date and the expected payment dates.
• The lowest projected cash balance in the quarter, and how it will be covered.
• Any buyer who is past due or near their credit limit before new orders are accepted.