Receivership may be one of few viable options for struggling cannabis companies facing upcoming debt obligations, according to a recent article in JD Supra that references information published in October by Green Market Report.
Publicly traded multi-state cannabis operators are facing a looming debt of $1.83 billion due by 2026, which may suggest even larger debts for private cannabis companies. This situation raises concerns that insolvencies within the cannabis industry could rise significantly in 2025 and 2026 unless these companies effectively manage their debts and secure funding.
If cannabis companies encounter this debt crisis, their options for insolvency will be limited. Federal bankruptcy protections are unavailable due to the federal illegality of cannabis. As a result, cannabis businesses struggling without bankruptcy protection or federal loan support will have few avenues for recovery.
Receiverships are becoming increasingly common as creditors look for experienced receivers to stabilize failing businesses and protect their interests. Throughout 2024, cannabis receiverships gained traction, often leading to asset sales rather than restructuring, although some companies have managed to recover. Each insolvency case is unique, and receivers aim to enhance value and preserve assets during court proceedings.
State regulators are aware of the challenges presented by the lack of federal bankruptcy options and are developing cannabis-specific insolvency regulations. For example, in California, regulations permit a receiver to continue operating a cannabis business during a receivership, which is vital since transferring licenses is generally restricted. This allows a new buyer to pursue state licenses while managing the existing operation.
Selecting a knowledgeable and experienced receiver is crucial in these situations, as cannabis businesses face complex regulations. Participants in this process will also require legal counsel well-versed in cannabis compliance to navigate regulatory requirements and facilitate negotiations with potential buyers.
Cannabis Receiverships: How the Griswold Law Team Can Help
Griswold Law is uniquely positioned to assist with cannabis business receiverships due to its experience as a court-appointed receiver over a variety of cannabis businesses, as well as its role as legal counsel in related matters.
