Distressed cannabis businesses can get temporary relief from a court-appointed receiver

Financial and Operational Models to Success

When approaching a tough situation where a company in distress needs to either try to save itself or negotiate debt, lawyers might be inclined to recommend Chapter 11. 

This well-known reorganization plan, conducted through federal bankruptcy courts, offers a business the ability to stay afloat, borrow money, pay off creditors or dissolve in the most financially beneficial manner. In the immature but growing cannabis industry, though, federal law prohibits companies from declaring bankruptcy and the best way to find relief is often in the form of a cannabis receivership.

Although legal cannabis at the state level is still a fairly recent development, the industry has seen plenty of businesses fail, and an alarming percentage of cannabis companies claim to operate without making any profit. Gross revenues may be high, but there is a litany of debilitating issues, such as tax code restraints—specifically Section 280E of the Internal Revenue Code—lack of investment capital, market oversaturation, illegal products, severe compliance regulations and forbidden interstate commerce that create intense pressure on businesses. Through a receivership, some of that pressure can be relieved.