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Oct 2020
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October 15, 2020

MI Authorizes Receivers for Distressed Marijuana Businesses

Gov. Gretchen Whitmer has signed into law amendments to the Michigan Regulation and Taxation of Marihuana Act (MRTMA) and the Medical Marihuana Facilities Licensing Act (MMFLA) that authorize the Marijuana Regulatory Agency (MRA) to approve the operation of a licensee under those statutes by a court-appointed receiver or trustee. This is a significant step for financial institutions and others who are contemplating making loans to marijuana-related businesses.

Marijuana is still illegal under federal law. As a result, federal bankruptcy protection is probably not available to marijuana businesses or their creditors. The unavailability of bankruptcy courts to supervise and control a financially troubled marijuana business is one major reason why lenders have been reluctant to lend to marijuana businesses. To fill that void, the amendments authorize the MRA to approve a receiver or trustee appointed by a state court judge to take control of financially struggling marijuana enterprises.

The goals of a receivership are similar to bankruptcy – to preserve and maximize the value of an operating business for the benefit of those who may have an interest in it. Under Michigan law, a receiver may be appointed by a court to manage the debtor’s property that is the subject of litigation. The receiver is an agent of the court and owes a fiduciary duty to the court, not to the parties in the litigation. The receiver acts for the benefit of those who may have an interest in the receivership property, and holds assets for the court and not for the debtor or the lender.

Under the amendments to the MRTMA and MMFLA, the MRA is required to establish procedures and standards for approving a court-appointed receiver or trustee to operate a licensed marijuana business. We anticipate that the MRA will move promptly to create those procedures and standards.

Lenders who are considering making loans to marijuana licensees will want to consult with their counsel to ensure that their lending documents allow them to take full advantage of a receivership in the event the borrower defaults on the loan. Lenders will also want to ensure that the loan agreements include provisions that address the special nature of the lender’s business and enable the lender to confirm on an ongoing basis that the lender is complying with state law and with federal enforcement priorities.

If you have any questions related to this or any other cannabis-related issue, please contact Elisabeth Von Eitzen, Matthew Crowe or your Warner attorney.

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