My Dispensary Customer Stopped Paying, What Happens Next?
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A dispensary account going past due can feel like a slow-motion crisis: your product is already on their shelves, your own vendors still need to be paid, and every day that passes makes the receivable harder to collect. If you’re asking, “My Dispensary Customer Stopped Paying, What Happens Next?” the most effective answer is a clear, documented escalation plan—starting with basic outreach and ending (if needed) in formal dispute resolution or litigation. The cannabis industry adds extra pressure: credit is often extended informally, and distressed retailers may prioritize certain product categories over others when cash gets tight.
Below is a practical, step-by-step roadmap grounded in guidance from industry and legal sources, including the Cannabis Industry Committee Blog, Cannabis Law Now, the U.S. Chamber of Commerce, Cannabiz Credit Association, and New York’s Office of Cannabis Management.
Key idea: Move from friendly reminders to formal notice, then to structured resolution options—based on what your contract allows and what’s financially worth pursuing.
1) First 1–60 Days Past Due: Start With Fast, Documented Outreach
When an invoice first goes overdue, your goal is to resolve it while preserving the relationship—without delaying so long that you lose leverage. The U.S. Chamber of Commerce recommends following up on the first day the payment is overdue with a polite email including the invoice number, amount due, and a request for an expected payment date, while assuming it was an oversight.
Send a reminder (and a second copy of the invoice)
Per the U.S. Chamber’s guidance, if a week or two passes with no payment, follow up again and include another copy of the invoice so the customer can’t claim it was misplaced. Keep all communication in writing (email is fine) and store it in a central accounts receivable file.
At 30–60 days overdue: call or request a meeting
The U.S. Chamber notes that once an invoice is 30 to 60 days overdue, it’s time to call or schedule a meeting to learn the real reason the invoice isn’t being paid—cash flow issues vs. a dispute about the product, terms, or delivery. This conversation matters because your next steps (payment plan vs. dispute resolution vs. legal escalation) depend on the root cause.
If the issue is cash flow, the U.S. Chamber suggests offering a payment plan—often the fastest path to getting paid while preserving the relationship. Treat the payment plan like a business agreement: confirm it in writing, set clear due dates, and document what happens if they miss a payment.
2) Read the Contract Before You Escalate (Notice, Cure, and Termination Rights)
Before you send threats or take action, anchor your approach in the written agreement. Cannabis Law Now emphasizes that the “can’s and can’ts” of a cannabis deal gone sideways are spelled out in the contract terms around performance standards, payment timing, fees, and consequences of breach.
Check for written notice requirements and cure periods
Cannabis Law Now notes that some contracts require written notice of breach and may require a cure period. That means you may not be able to take certain actions until you provide notice and the other side misses the cure deadline. If you skip required steps, you risk weakening your legal position later.
Do you have to keep performing (shipping)? Often no—but verify
If you’re thinking, “My Dispensary Customer Stopped Paying, What Happens Next?” one of the biggest operational questions is whether you must keep shipping. Cannabis Law Now states that “nine times out of ten” the non-breaching party is relieved from corresponding performance when the other side breaches—but you must read your contract to confirm. Some agreements allow immediate termination for non-payment while preserving remedies “at law and in equity.”
Also, don’t ignore any “effects of termination” clause. Cannabis Law Now highlights that these provisions can strengthen your ability to collect and seek damages after termination.
Look for leverage clauses: late fees and fee shifting
Cannabis Law Now points out that lawsuits can be worth it partly because of fee shifting provisions (prevailing party attorneys’ fees) in the agreement. If your contract includes late fees, interest, or attorneys’ fees, you’ll want to reference those terms accurately in your formal notices.
3) Around 90 Days Past Due: Send a Formal Demand Letter (Certified Mail)
When informal efforts stall, you need to create a paper trail that shows you acted reasonably and gave the customer a clear opportunity to cure. The U.S. Chamber advises that once you reach the 90-day mark, it’s time to send a formal debt collection (demand) letter by certified mail to establish documentation.
The Cannabiz Credit Association similarly recommends a professional demand letter and emphasizes sending it via certified mail so you have proof of delivery. It also outlines practical elements your letter should include:
- A clear description of the debt (amount, due date, and purpose)
- Evidence supporting your claim
- A deadline for repayment or a proposed repayment schedule
- Potential consequences if payment is not made
Keep the letter factual. If your agreement requires notice and a cure period (as Cannabis Law Now cautions), align your demand letter with those timelines and requirements.
4) If They Still Don’t Pay: Choose the Right Recovery Path (Plan, Agency, ADR, or Court)
After a demand letter, the question becomes how far to push—and which tool best matches the size of the debt, the evidence you have, and the relationship you want to preserve.
Payment plans: often the fastest resolution when cash flow is the issue
When you confirm the dispensary’s issue is cash flow, the U.S. Chamber’s guidance is to consider a payment plan as a way to get paid while preserving the relationship. Put the plan in writing and track compliance closely.
Collection agencies: time-saving, but costly
If you’re past due and internal efforts aren’t working, the U.S. Chamber notes you can hire a collection agency once an invoice is more than 90 days past due. The tradeoff is cost: most agencies take 20% to 50% of what they collect. The U.S. Chamber also cautions that some agencies use aggressive tactics that could harm your reputation—an important consideration in a relationship-driven cannabis supply chain.
Mediation or arbitration: private, structured, and often less adversarial
For many cannabis businesses, privacy and speed matter. The Cannabiz Credit Association highlights mediation (a neutral facilitator helps parties reach a solution) and arbitration (a neutral arbitrator issues a binding decision), noting these options can offer greater privacy than court proceedings—which can be important in cannabis.
If your contract includes an arbitration clause, follow it. If it doesn’t, mediation may still be a practical next step when you want to preserve the relationship while pushing for a firm repayment schedule.
Litigation: when the amount at stake justifies court
Cannabis Law Now explains that if demand letters and collections efforts fail—and your agreement permits it—then you may consider going to court. It also stresses a key operational point: for breach of contract or failure to pay claims, you generally need a lawyer experienced in commercial contract disputes, because a “run of the mill” cannabis lawyer may not routinely litigate these cases.
Cannabis Law Now also identifies two legal concepts that can affect whether litigation is worth it:
- Fee shifting (prevailing party attorneys’ fees), if your contract allows it
- Piercing the corporate veil to reach bad actors behind a company—while noting it is a high bar
5) Cannabis-Specific Dynamics: Why Dispensaries Stop Paying (and How to Protect Yourself)
Collections in cannabis aren’t always like other industries. The Cannabis Industry Committee Blog describes how, in earlier market years, many companies believed they wouldn’t have collections issues because they were paid COD or “on time.” But as reports of dispensaries stopping payments hit the press, the blog argues collections has been an ignored issue that vendors now have to address directly.
Distressed dispensaries may pay “key” vendors first
One practical insight from the Committee Blog: when a company gets into financial trouble, it starts allocating limited cash. In a dispensary scenario, suppliers of high-demand essentials like flower and concentrates may get paid first, while “secondary” products may get delayed. The blog’s example is that if you manufacture infused THC/CBD sports drinks that don’t sell as well, you may be the one who doesn’t get paid on time when the dispensary is short on cash.
Use supplier relationships to validate what’s happening
The Committee Blog recommends leveraging relationships with other suppliers to find out what’s going on—especially if you receive negative information that other vendors are also past due. This isn’t about gossip; it’s about risk management and deciding how quickly to tighten terms.
Watch out for “friendship credit” and tighten your credit practices
The Committee Blog calls out a common industry problem: much of the credit extended in cannabis is “friendship credit”—credit extended based on personal relationships without credit analysis. The blog warns that the rules are changing, and many customers are not paying on time (or at all). If this situation feels familiar, take it as a cue to formalize your process: written terms, clear due dates, and consistent enforcement.
Know your state tools: New York’s COD list for delinquent payments
If you operate in New York, there’s an additional, highly practical consequence for delinquent retailers. New York’s Office of Cannabis Management explains that once it is notified, reviews a delinquent payment report, and determines it is valid, the business is placed on a C.O.D. list until suppliers that reported delinquencies confirm they have been paid in full.
OCM further states that if a business appears on the COD list, no supplier can sell cannabis products to that retailer on credit. OCM also notes that the listed business will be provided the supplier(s) who reported them and the amount claimed owed. For vendors, this is a reminder that some states may offer formal reporting pathways that directly affect a retailer’s ability to keep buying on terms.
Practical takeaway: If your dispensary customer stopped paying, your leverage often increases when you (1) document the delinquency properly, (2) enforce contract notice requirements, and (3) tighten credit terms—up to and including COD—based on verified risk signals.
Frequently Asked Questions
My Dispensary Customer Stopped Paying, What Happens Next if I keep shipping anyway?
Cannabis Law Now states that “nine times out of ten” you do not have to keep performing after the other party breaches, but it emphasizes you must read your contract. Some agreements allow immediate termination for non-payment, and “effects of termination” provisions can impact your remedies. If your contract requires notice and a cure period, follow that process before taking action.
When should I switch from reminders to a formal demand letter?
The U.S. Chamber of Commerce recommends friendly follow-up immediately when payment is overdue, then escalating to calls/meetings when invoices are 30–60 days overdue. Once you reach 90 days, it advises sending a formal demand letter by certified mail to establish a paper trail. The Cannabiz Credit Association echoes certified mail and outlines key demand letter elements (debt details, evidence, deadline, consequences).
Should I hire a collection agency for a delinquent dispensary account?
The U.S. Chamber notes that collection agencies can be used once an invoice is more than 90 days past due, and that most agencies take 20% to 50% of what they collect. It also cautions that aggressive tactics can damage your reputation. Use this option when saving internal time is worth the cost and potential relationship impact.
Is mediation or arbitration a good fit for cannabis debt disputes?
According to the Cannabiz Credit Association, mediation and arbitration can be faster, less expensive, and less adversarial than litigation, and they offer greater privacy than court—an important consideration in cannabis. Arbitration may be required if your contract specifies it; mediation can be a practical step even without a contract clause if both parties agree.
What if my delinquent customer is in New York—can they be forced onto COD?
New York’s Office of Cannabis Management explains that once it receives notice, reviews a delinquency report, and determines it is valid, the retailer can be placed on the C.O.D. list until suppliers report being paid in full. OCM also states that if a business is on the COD list, no supplier can sell cannabis products to them on credit. If you sell into New York, this is a major compliance-and-collections tool to understand.
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