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Cannabis Receiverships

Cannabis Receiverships: the remedy for failing cannabis businesses in california

Cannabis Receiverships​

When a cannabis business enters receivership, a third party—acting as a receiver, assumes control of its assets and operations, often as the result of financial hardship. If you need to secure a receiver in an active case, the Griswold Law team is here for you.

Because of our experience serving as a court-appointed receiver throughout the cannabis industry in California, our team at Griswold Law is uniquely qualified to help you navigate the ins and outs of cannabis receiverships.

In addition to our experience serving as the receiver for cannabis operations, we also have experience acting as legal counsel for other receivers in control of retail dispensaries and cannabis production facilities.

The receivership remedy can be an effective path to address the struggles of a cannabis business. Seeking and obtaining a court-appointed receiver can provide these businesses with a reliable outside source to take control of a distressed cannabis business to stabilize and potentially revitalize it.

Resources:

Get Your Cannabis Receivership Guide Today

The Receivership Remedy: A Solution for Struggling Cannabis Business Owners

Cannabis companies face unique challenges due to the complexities of California law. Support from legal professionals can help. Download our whitepaper to discover:

  • ^How California’s cannabis industry has grown since legalization in 2016
  • ^The unique rules that cannabis-related business owners have to follow
  • ^How a cannabis receivership, facilitated by a court-appointed receiver, may be the solution for a struggling business owner
  • ^How the Griswold Law team can help
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Factors to Consider Before Seeking a Receivership

As you consider a cannabis receivership, you will want to examine factors like your business’s operating capital, your existing tax obligations, any business assets you have, as well as any impending debt obligations.

Entering a receivership is a multi-faceted undertaking, and there are many factors to weigh before deciding whether or not a cannabis receivership is right for your business.

  • A receiver can aid with the liquidation of assets to generate capital and achieve solvency.
  • The right receiver can also attract potential investors and bring in new capital and leadership to generate new energy and new attention around the business.
  • There are challenges associated with the transfer of state-issued cannabis licenses.
  • Bankruptcy protection is generally unavailable to cannabis businesses.

Cannabis Receiverships: How the Griswold Law Team Can Help

Griswold Law is uniquely positioned for cannabis business receiverships due to its experience as a court-appointed receiver over retail cannabis dispensaries, as well as its experience acting as legal counsel to receivers in court-ordered control of retail dispensaries and cannabis production facilities.

Business Operations

Business Operations

A frequent concern of business owners in a receivership matter is whether or not the business will still be able to function. Is there any hope of the company continuing to operate? The short answer is yes: in many situations, a receiver can take over a business’s regular operations in order to ensure its continued day-to-day functioning.

Whether the goal is to sell the business or manage it until a business dispute is settled between the parties, the receiver can hire managers and facilitate day-to-day operations until the receivership period has ended.

Local & State Licensing

Local & State Licensing

Because cannabis is a heavily regulated industry in California, businesses cannot take the risk of failing to file all local and state licensing forms and staying current with all applicable regulations–including reporting and paying all taxes. A receiver will ensure that there are no lapses in local and state licensing.

When serving as receivers for cannabis industry businesses, the Griswold Law team has developed expertise in achieving and maintaining compliance.

Conditional Use Permits

Conditional Use Permits

Because legal cannabis-related businesses are still a relatively new reality in California, local zoning laws are still developing. Many businesses find that they need to apply for and maintain a Conditional Use Permit (CUP) in order to operate legally in their physical location. We ensure CUP compliance while managing a distressed cannabis business in receivership.

Financial Accounting/Banking

Financial Accounting/Banking

Most cannabis-related businesses are banned from utilizing traditional banking methods and operate in a cash-only environment. When you couple this reality with potential allegations of financial mismanagement or fraud, you have all the makings for a real disaster. A receiver can play an essential role in conducting a forensic accounting audit, generating daily cash reports, and compiling neutral financial reports for the review of the court and all parties to keep operations above board.

Security

Security

Cannabis-related businesses—especially dispensaries—must take security concerns seriously. All-cash businesses are at high risk for theft, which means that dispensaries and other cannabis-related businesses require additional security protocols to stay protected. The team at Griswold Law can evaluate the company’s current security protocols and adjust them accordingly to ensure that the business and property are protected and the business’s assets are secure.

Expert Management

Expert Management

A receivership involves the appointment of a court-approved receiver who acts as a neutral third party with expertise in managing distressed businesses. The receiver can bring professional management skills, experience, and objectivity to the operation of the business, making strategic decisions to stabilize operations and improve financial performance.

FAQs on Cannabis Receiverships

Griswold Law has substantial knowledge and experience managing California cannabis receiverships focused on business operations, local and state licensing, conditional use permits, banking, and security. Further, we have successfully obtained court approval to sell multiple cannabis businesses via receivership sale.

Are Cannabis Businesses Eligible for Bankruptcy Protection?

Cannabis businesses are generally not eligible for bankruptcy protection due to the federal prohibition against cannabis. Therefore, a receivership can be an effective path to address struggles within a cannabis business. Seeking and obtaining a court-appointed receiver to take control of and operate a distressed cannabis business can be initiated by a lender affected by a failing business loan, but it can also be initiated by a partner within the cannabis business alleging financial mismanagement.

What Reorganization Options are Available to Cannabis Businesses?

Without the option for bankruptcy protection or federal small business loan support that other small businesses have at their disposal, struggling cannabis businesses have limited avenues for recovery. Receiverships are becoming increasingly commonplace, as creditors hope that receivers who are experienced at navigating the intricate and ever-evolving state and local cannabis regulations can stabilize failing businesses and protect creditor interests.

What Is the Legal Status of Cannabis in California?

California has established itself as a substantial marijuana industry, reaching an estimated $3 billion in legal sales in 2019. Despite the large, robust legal market in California, complex regulations, high taxes at the state and local level, and competition (in both the legal and illegal markets) are challenges that some businesses find insurmountable. It’s estimated that 80% of marijuana transactions still take place on the underground, illicit market.

Despite the widespread adoption of legal cannabis at the state level—eleven states allow recreational use, while thirty-three more allow medical use—the federal government lags behind this trend. Federal law classifies cannabis as a Schedule I drug, the same as heroin, meaning that the federal government views cannabis as having a high potential for abuse and the potential to create severe psychological and/or physical dependence.

Are Cannabis Businesses Able to Work with Banking Organizations?

​The cannabis business industry is a complex one thanks to layered restrictions between certain local, state, and federal statutes. As such, the majority of cannabis businesses cannot utilize the banking system.

This restriction can create accounting challenges and security concerns and can promote a general lack of legitimacy for the industry as a whole. As a result, insurance companies—including title insurance companies—can be hesitant to wade into the cannabis industry. These insurance companies also work within a federally regulated industry, which limits their potential for involvement with cannabis-related businesses.

When Should Cannabis Businesses Consider a Receivership?

Cannabis businesses should consider a receivership when they are facing severe financial distress or insolvency and are unable to meet their financial obligations. A receivership may also be necessary when a cannabis business is unable to repay its debts, if it faces imminent foreclosure or liquidation, or if it is at risk of losing its assets.

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The Griwold Law Team

Griswold Law, APC

705 N. Vulcan Avenue
Encinitas, CA 92024

T: (858) 481-1300
F: (888) 624-9177
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