Everyone involved in the marijuana business knows that it can be tough going. The status of marijuana as a Schedule I drug under the Federal Controlled Substances Act has made banking and borrowing very difficult for marijuana licensees. Add to that restrictions on out of state ownership of and lending to marijuana businesses in Washington State and you end up with many struggling marijuana businesses.
When marijuana business find themselves overly burdened by debt, their options are limited. Due to the federal illegality of marijuana, state licensed marijuana businesses cannot seek bankruptcy protection. In Washington State, however, marijuana businesses owners that wish to seek protection from creditors and/or dissolve their company can utilize Washington State’s Receivership Act.
The Receivership Act allows for the appointment of a Receiver to take control of the assets of the marijuana business and its operations. The appointment of a Receiver, implements a 60 day automatic stay period, which stops all collection proceedings and lawsuits. The imposition of the automatic stay can help to halt the bleeding for the marijuana business and provide time for a plan to be put in place to sell the assets for a reasonable price. A petition for receivership can also be filed by a creditor in order to protect its collateral and ensure that the assets of the marijuana business are preserved for sale.
A marijuana business’s state issued license tends to be its most valuable asset. As we see more marijuana business failures, it is likely that we are also going to see more of these businesses go into receivership and as a result a number of state issued marijuana licenses will likely end up being sold by Receivers. What will be interesting to see is if this depresses the price for licenses or otherwise affects the volatile marketplace for Washington State marijuana licenses.
All marijuana business owners should do their best to head off ownership disputes and avoid taking on too much debt. But, when there is no choice except to dissolve the company then licensees would be wise to consult with their legal counsel to determine whether receivership is a suitable option.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.