NOTE 18 – BAD DEBTS

The Company maintains two types of reserves to deal with uncertain collections of amounts due—an allowance against trade accounts receivable, and a reserve against cash advanced by the Company to its cannabis-licensed clients for working capital purposes (such advances, net of any collections, are referred to as working capital balances).

During 2019, the Company (i) increased the allowance against trade accounts receivable (the “AR Allowance”) by approximately $39.5 million, (ii) increased the reserve against working capital balances (the “WC Reserve”) by approximately $3.4 million, and (iii) wrote off approximately $1.6 million of notes receivable. The aggregate of these three amounts of approximately $44.5 million was charged to Bad Debts on the statement of operations for the year ended December 31, 2019.

The 2019 increase in the AR Allowance was comprised of a general allowance of $600,000 against receivable balances as they age, and specific allowances against the receivable balances due from (i) GenCanna of approximately $29.0 million following GenCanna’s Chapter 11 filing as discussed in Note 20 – Related Party Transactions, (ii) Kind of approximately $9.7 million, in light of the current litigation between the Company and Kind as further discussed in Note 21 – Commitments and Contingencies, and (iii) Harvest of approximately $239,000 based on the expected impact of the COVID-19 pandemic on Harvest’s local economy.

The 2019 increase in the WC Reserve was comprised of specific reserves against the working capital balances of Kind of approximately $1.5 million and Harvest of approximately $1.9 million.

During 2020, the Company increased the AR Allowance by approximately $500,000, and the WC Reserve by approximately $482,000. The aggregate of these two amounts of approximately $982,000 was charged to Bad Debts on the statement of operations for the year ended December 31, 2020.

The 2020 increase in the AR Allowance was comprised of increases to the specific allowances against the Kind and Harvest receivable balances of approximately $790,000 and $76,000, respectively, offset by a reduction to the general allowance of approximately $366,000. The 2020 increase in the WC Reserve was comprised of an increase to the reserves against the working capital balances of Harvest of approximately $482,000.