Alternatives to Bankruptcy for Cannabis Companies: Part 3

Alternatives to Bankruptcy for Cannabis Companies: Part 3

In Part 1 of this series, we discuss the lack of bankruptcy protection for cannabis companies that are struggling in the current environment, as bankruptcy in the United States is a federally-only proceeding and cannabis remains illegal under federal law. We have proposed a number of alternative options for companies that are Part 2 of this series focused on state law receivership systems in several states.

In the third and final part of this series, we continue to examine state law receivership in several more states and discuss the final non-bankruptcy option for cannabis companies: allocation for the benefit of creditors. Masu.

Below is a summary of the laws and regulations governing receiverships in several additional states that have legalized cannabis.


In Massachusetts, receiverships are governed by statute, and although there are numerous receivership statutes for various industries and types of business entities, the appointment of a receiver is generally limited to third-party (collateral) It is granted by the court after the filing of a complaint by the most numerous creditor. .

In line with industry-specific approaches, state cannabis regulators have enacted rules detailing cannabis receivership procedures. Most notable among these rules is the requirement to notify state regulators at least five days before filing a petition to appoint a recipient, similar to Nevada’s approach, Establishing the minimum requirements for achieving this goal. (Typically required to pass a background check and have no criminal history). In addition, regional licenses in Massachusetts are quite restrictive, so coordination with the regions in which cannabis companies operate is also necessary.


Michigan has an extensive receivership system in addition to business and industry-specific statutes. General receivership law allows a court to appoint a receiver as part of its equitable powers, as long as the law allows. In 2020, Michigan law was amended to specifically allow cannabis companies to appoint receivers. State cannabis regulatory agency rules require recipients to notify the agency within 10 days of appointment, and Michigan law further requires recipients to operate cannabis facilities only with state regulatory approval. It stipulates that it is possible.

Anyone can request the appointment of a Michigan Trustee, even if they have a connection to real property or business being placed in receivership. However, a lawsuit cannot be filed solely to appoint a receiver; the lawsuit must be filed after litigation on another claim has already taken place. If the court determines that there is a reason to appoint a receiver, that receiver must have “sufficient ability, qualifications, and experience to manage the property under receivership.” Michigan trustees appointed under the General Commercial Receivership Act (including cannabis company trustees) are subject to the court’s impartial discretion, but have a broad range of powers, including powers to operate, reorganize, liquidate, and sell businesses. have authority.


Like Michigan, Missouri has general receivership provisions as well as specific receivership provisions, particularly for corporations. However, Missouri does not have specific regulations regarding cannabis companies, and as a result, Missouri’s receivership system is based on a general receivership system.

A receiver in Missouri is appointed by court order upon the application of a person with an interest in the property for which receivership is sought, and may be appointed prior to the entry of judgment. Additionally, a trustee designation may be claimed as an independent claim rather than as an incidental claim to another principal claim. A trustee may be authorized as a general trustee (similar to a “capital trustee” in other states) with authority over all of the debtor’s assets or over specific assets of the debtor.

Missouri’s cannabis regulations include few rules specifically related to receivership, other than a requirement to notify state cannabis regulators within five days of filing for receivership. Although some parties have cited a lack of cannabis-specific regulations as creating a lack of clarity regarding receivership in these states, Missouri courts and state regulators have determined that at least one It appears that the company is applying a general receivership system to an industry that has two receivership systems. Final stage of completion.

Assignment for the benefit of creditors

To conclude this series, I would like to revisit another option for dealing with financially troubled companies that I discussed in Part 1: assignment for the benefit of creditors (ABC). Voluntary negotiations with creditors are typically used when the value of the underlying business clearly exceeds the business’s debts, and receiverships allow creditors to request a court to reinstate the business, even despite their objections. It is a means to seek means to force construction and liquidation. Regarding the business itself, the ABC process can be attractive if creditors and debtors maintain relatively amicable relations, but the value of the business is so high that equity holders see little value in the business. It is clear that there is no or no value left. Creditors may view the ABC process as a better proposition in these circumstances, as it is generally a lower cost option compared to a court-supervised receivership.

ABC is a state common law or statutory remedy available to debtors that is largely similar to Chapter 7 or Chapter 11 bankruptcy. Unlike an administrative receivership, where a creditor applies to the court to appoint a receiver and the appointment is granted despite the debtor’s objections, an ABC is a step that the debtor himself takes to liquidate his assets in an orderly manner. is. Proceeds are paid to creditors. Although courts may be involved to resolve specific issues, the ABC process generally occurs without court involvement or direct supervision.

Unlike receivership, ABC is a step taken by the debtor himself to liquidate his assets in an orderly manner with the proceeds paid to creditors.To begin the ABC process, a debtor selects an assignee to take ownership of its assets, and that assignee holds the assets as a function equivalent to a trust for the benefit of the debtor’s creditors. Masu. Therefore, the assignee, although chosen by the debtor, has obligations (usually fiduciary duties under state law) to the creditor body.

Once the transfer has taken place, the transferee has a relatively clear understanding of the debtor’s assets and liabilities, to complete the transfer, and to notify third parties and creditors of the facts of the debtor’s assets and liabilities. It will take a lot of effort. An assignment has occurred. The transferee then typically oversees the operations of the business (if it continues) through some type of public auction or privately negotiated sale (similar to bankruptcy proceedings, which may include stalking). Get ready to create an asset sale process. horse bidding).

One notable difference between bankruptcy and receivership proceedings and ABC is that assets sold in ABC are generally not sold for free, free of all underlying liens. . This means that the senior secured creditor must consent to the sale or the lien will be transferred. along with assets.

ABCs offer many advantages over receiverships, including generally lower costs, greater flexibility in choosing assignees, and generally easier and faster paths to liquidation of assets. There are also limitations, such as the risk that a third party may seek to appoint a receiver. This may ultimately result in higher costs for all parties involved, such as what the recipient receives after the ABC has been initiated or the remuneration package awarded to the assignee is disproportionately high. Further, the sale of ABC’s assets will not automatically be sold free of charge and free from all liens.

After all, no matter where a cannabis company does business, a lack of access to federal bankruptcy courts means that cannabis companies and their creditors can’t take action to restructure or liquidate their businesses. Possible means are not taken away. However, these options are less familiar to those who typically operate in the bankruptcy-focused restructuring space of other industries, so cannabis industry companies and creditors should be aware of the cannabis industry and the available restructuring alternatives. We strongly recommend that you consult with an experienced attorney. To them.

With two decades of dedicated experience, Nuggs is a seasoned cannabis writer and grower. His journey has been a harmonious blend of nurturing cannabis from seed to harvest and crafting insightful content. A true expert, they've honed strain-specific knowledge, cultivation techniques, and industry insights. His passion shines through enlightening articles and thriving gardens, making them a respected figure in both the growing and writing facets of the cannabis world.

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