Marijuana Businesses: A Growing Area of Receiverships
Many marijuana businesses were formed by partners who wouldn’t normally be partners in business. Oftentimes, there is one partner who is an expert in cannabis and one partner who is the financial expert. Neither really knows or understands what the other partner is doing. As long as they are able to create a successful business, they are content. But as soon as anything negative happens, the potential for conflict is great.
Additionally, due to federal law and banking regulations, most marijuana businesses are currently cash-based. A cash-based business is inherently tempting to mismanage or bend a few accounting rules.
This combination of factors makes marijuana businesses vulnerable to conflict, legal action, and receiverships.
Any conflict amongst partners, whether due to how the business is run, how the cash is manage, or some other irregular action, may lead to dispute. These disputes, in turn, may lead to litigation, which ultimately leads to the appointment of a receiver to protect and preserve the business while the parties battle it out in court.
Marijuana receiverships have many unique characteristics and are not for the inexperienced court receiver. It doesn’t matter how many receiverships you’ve managed, if you haven’t specifically managed a marijuana court receivership, you are probably not familiar with the challenges with which you may be confronted. This information is designed to help you determine what assistance, if any, you may need if you are appointed over a marijuana court receivership.
There are so many issues unique to this type of receivership that unless you are familiar with all of them, it can be quite difficult to achieve a positive outcome.
In addition to the business and managerial issues, all marijuana businesses must address the conflict between federal and state laws. Unless you and your team are familiar with both, the receivership could wind up with more problems than the business itself originally had.
As of this writing, over 31 states in the United States have passed some sort of laws relating to marijuana. Because of the profitability in the field of marijuana, businesses are continually being established in the United States. It is predicted that eventually, the government will remove marijuana from the list of illegal drugs and marijuana will become completely legal for medical as well as recreational uses.
Marijuana Businesses Receiverships: Rewarding and Challenging
Medical marijuana businesses employ a large dedicated staff and can be quite profitable if run correctly. They can be extremely rewarding to manage and exciting to watch as the business thrives.
Patients, many of whom have critical ailments, often share how their lives have been positively impacted by the use of medical marijuana.
Some medical marijuana operations have or are associated with a Grow Facility. These greenhouses, or similar ventures, grow the plants that are used for medicine. Many dispensaries sell buds, the flowers of the marijuana plant; trim, the leaves of the marijuana plant; and oil, derived from the leaves of the marijuana plant.
The oil is very important. It is used as an infusion for food products like candies or baked goods. It can also be cooked into a brittle product called “Shatter.”
Most full-service dispensaries will have a kitchen where they create the foods that will be infused with medical marijuana. In a well-run operation and depending on any laws or regulations, all of the products will be tested at a certified lab. The lab will determine the potency of the medicine which will then be printed on the product label.
Each State Has Its Own Rules and Regulations
Each state has its own set of rules and regulations concerning medical marijuana. No two states have exactly the same set of rules and regulations. Depending on the state in which the receivership is located, you will need to know the rules and regulations for the receivership over which you are appointed.
In most cases, the receiver is required to be licensed to operate the dispensary, grow operation, or kitchen. Employees often need a state issued card or license to work in the dispensary, grow operation, or kitchen. Additionally, fingerprinting and background checks are often required. Felony convictions often result in the state’s refusal to issue the card.
Dispensary patients, or customers, are also required to present a state issued card in some states. These cards are obtained by prescription from a licensed physician. Most dispensaries have an on-call physician available to evaluate patients, write prescriptions, and respond to emergencies.
Banking Limitations: It’s a Cash-Based Business
As previously mentioned, most banks will not handle the banking for a medical marijuana business. As a result, dispensaries are a cash-based operation. As you may know, a cash only business requires the implementation of unique and specific accounting and theft prevention procedures. Lawyers, accountants, employees, labor department, state taxing agencies, the Internal Revenue Service, and the court receiver will most likely need to be paid in cash.
Medical Marijuana Dispensaries are a labor intensive business, with many employees growing, harvesting, baking, cooking, purchasing, packaging, transporting, consulting with patients, accounting, regulating, and providing security. Most of these positions require highly trained staff with many years of education and experience. The sales staff must be familiar with a wide variety of ailments and be able to recommend the best medicine to treat these ailments. This involves knowledge of hundreds of strains of marijuana and the best strains to treat each ailment. It is crucial that you keep as many existing employees as possible in order to keep the business running smoothly.
Thing to Make Sure You Do
Know the Banking Requirements in Your State
As court receivers, we must always do our best to protect and preserve the value of a business as well as its assets. When we are approached for a medical marijuana receivership appointment, it is very important that we make sure that the court order does not require us to deposit the revenue in a licensed and insured bank. Because of the constraints of a marijuana court receivership, almost all banks will not handle money associated with marijuana, this particular order would be nearly impossible to follow. Because this is a cash business, be sure that the court order includes a provision that neither the receiver, nor the receiver’s bond, is responsible for funds stolen due to any action other than negligence.
Hire the Right Professionals
Because of the potential legal challenges associated with marijuana, you will most certainly want to include in the court order that you have the right to not only hire civil counsel to represent you, but also criminal counsel if the need arises. It is highly recommended that you choose local counsel knowledgeable in local laws and with strong relationships in the community. Good counsel is particularly important when you are not sure of the legality of an action you are considering and first want to vet the idea with an attorney familiar with the laws.
You will also want a certified public accountant who understands this business and can help you comply with state and federal tax laws. A competent project manager is also important since the manager will be at the businesses almost all of the time and will be handling tens of thousands of dollars in cash.
You must surround yourself with highly trustworthy and knowledge people in order to be successful.
Meet with Government Officials in the Area
Once you have been appointed over the marijuana receivership, it is a good idea to take your court order and meet with local government officials who are in charge of administering these types of businesses. If all goes well, you will leave the meeting with a clearer understanding of the compliance actions needed to run the business.
Sweep the Cash Regularly
Because of the large amount of cash the business receives, the business should be swept of cash on a daily basis. If the cash flow is very high, the cash should be swept several times a day. It’s important to vary the time of day you sweep the cash to avoid potential theft. The excess cash needs to be kept in multiple safe vaults in a variety of different locations. This will safeguard against a single large theft of the excess cash. Another important safeguard is a good insurance policy. There are insurance companies that specialize in writing product liability insurance for medical marijuana businesses.
Educate the Nearby Community
Community involvement is another important issue that is often overlooked. Be sure your business is involved with its community.You and your staff must educate the members of your community, on a regular basis, of how beneficial your business is to the community. Don’t underestimate the importance of keeping positive relationships between your business and your community
One example of a successful education programs is inviting city leadership and law enforcement to attend a private presentation at the dispensary. During the presentation, close down the dispensary for a few hours so they have an uninterrupted private experience. Include facility tours, patient testimonials, and presentations by the medical doctor, grow staff, patient consultants, kitchen staff, security, and patients. These types of programs help educate your local community and dispel many of the taboos and negative connotations associated with marijuana.
A Few Words of Caution About Cannabis Receiverships
Cannabis receiverships can be tricky and are fraught with difficulties. Before you accept the appointment to one of these assignments, make sure you are familiar with the unique laws concerning the management and operation of a medical marijuana dispensary. Thoroughly review any federal, state, county, and city laws and ordinances that govern the operations of these types of businesses.
Your support staff must also be experienced with the management and operation of a medical marijuana dispensary. A medical marijuana dispensary is a very unique business and requires professionals, including management, staff, bookkeepers, accountants and attorneys, all of whom specialize in this field in order for the receivership to be successful.
There will inevitably be accounting and legal questions that need to be addressed during the course of the receivership. It will not always be clear what regulation or law applies to certain situations. Before you take over this type of business, be sure you have a well thought out business plan. These businesses tend to have large staff and if you do not have a plan in place and ready to execute from day one, the staff will lose faith in you quickly, sales will drop, and the receivership will be hard pressed to succeed.
A Final Word of Caution: Always Report the Cash
One final word of caution regarding receiverships over this type of cash-based business: always report the cash.
Sometimes, one or more of the people working for the dispensary may ask you to be less than 100% ethical with regards to the cash. After all, it’s a cash-based business, cash is flowing in great amounts, and “no one else needs to know.” They may ask you to run some of their personal expenses through the business. They may ask you to use some of the money for expenses unrelated to the business. They may ask for a small personal loan that they promise to pay back as soon as possible.
Don’t do it!
Remember, as a court receiver, you are an officer of the court. Do not represent the marijuana business as anything other then what it is. We are tasked with carrying out the court’s orders while protecting and preserving the business.
About Kevin Singer and Receivership Specialists
Kevin Singer and Receivership Specialists have been appointed court receiver over multiple dispensaries, a marijuana grow operation, and a cannabis kitchen. As a principal at Receivership Specialists, Mr. Singer has served as Court Receiver, Court Referee, and Chapter 11 Bankruptcy Trustee since 2001 and has been appointed to over 368 cases in California, Arizona, Nevada, and Colorado.
For more information about having Kevin Singer and Receivership Specialists appointed to your legal matter, call Mr. Singer at 877.755.9064 or use our Contact Form.