TDR Research Unveils DPO (Payables) Variation in the Cannabis Industry

The TDR Three Takeaways:

  1. DPO Variation: There’s a wide range in DPO among cannabis companies, indicating different approaches to managing payments to suppliers.
  2. Financial Health Indicator: Lower DPO suggest companies are paying suppliers promptly, which could point to good cash management and financial stability.
  3. High DPO Implications: Companies with high DPOs might be using longer payment terms to manage cash flow, or they could be facing payment challenges.

In the cannabis sector, the metric of DPO (Days Payables Outstanding) serves as a significant indicator of a company’s efficiency in managing its payment obligations to suppliers. TDR Research’s analysis of 43 cannabis companies reveals a notable variance in DPO figures, ranging from 13 to 981 days, highlighting the diverse financial management practices within the industry. A lower DPO is generally viewed positively, suggesting that a company pays its suppliers quickly, potentially securing favorable payment terms, discounts, and reinforcing supplier trust. This prompt payment practice not only demonstrates effective cash management and liquidity, indicating a company’s ability to meet short-term liabilities, but it also supports the credibility of reported revenues by showing that the revenue is not only recognized but also converted into cash used to settle debts.

The calculation of DPO is straightforward yet insightful. By comparing a company’s average accounts payable with its cost of goods sold (COGS) over a specific period and adjusting for the total days in that period, the DPO metric offers a clear view of how long a company takes to pay its suppliers. This comparison provides a snapshot of a company’s payment cycle, encapsulating its approach to cash management and payment policies in a single figure.

Among the cannabis companies analyzed, Green Thumb, Rubicon Organics, Delta 9 Cannabis, Planet 13 Holdings, and Cresco Labs demonstrate the most efficient payment practices, with DPOs ranging from 13 to 22 days. These companies exemplify strong cash management, possibly benefiting from more favorable payment terms with suppliers and indicating a healthy financial posture.

Conversely, Blueberries Medical Corp, PharmaCielo, Decibel Cannabis, StateHouse, and Indiva Limited represent the spectrum’s other end, with DPO figures significantly higher, indicating potential challenges in cash management or strategic decisions to extend payment periods. With DPO figures stretching up to 981 days, these companies highlight the varied strategies and financial health within the cannabis industry.

TDR Research’s commitment to regularly updating and sharing these metrics underlines the importance of DPO and other financial indicators in assessing a company’s operational integrity and financial stability. By providing such analysis, TDR Research aims to offer valuable insights into the cannabis sector’s financial practices, contributing to a deeper understanding of the industry’s economic landscape.Want to keep up to date with all of TDR’s research, subscribe to our daily Baked In newsletter.    

You might also like

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More