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Michigan voters approved medical marijuana in 2008 and its recreational use in 2018.  The Great Lakes State is purportedly the third largest market for cannabis in the country, after California and Colorado.

There are at least three major problems facing the industry, including too much product, for one.  The market is saturated.  Michigan is truly awash in weed.  It seems like you can’t pump gas or drive on a local freeway without seeing an ad for it. And have you walked or driven through downtown Detroit in the past year or two?  You can’t miss the aroma. Plentiful supply naturally leads to depressed prices, lower or nonexistent profits, and demanding creditors.

Another problem?  The complications caused by two levels of governmental licensing.  There is state licensing in addition to local requirements imposed by each municipality that allows it. There are different rules and regulations city-by-city.

Finally, a third and very significant problem for the cannabis industry in Michigan is that it’s still illegal under federal law. The current administration is slowly edging closer to a change in its characterization as a Schedule I Controlled Substance under the Controlled Substances Act (21 USC §801 et seq.).  The President called for a review of how marijuana is scheduled under federal law last October, but it is uncertain when that review will be complete.

A huge disadvantage for the industry because of the federal prohibition is the inability to use bankruptcy courts to obtain relief.  What is a marijuana operator awash in debt to do if it cannot file for protection under the Bankruptcy Code?  Back in 2020, I wrote about legislation that passed both state chambers to be signed by the Governor, including amendments to the Commercial Real Estate Receivership Act, the Michigan Regulation and Taxation of Marihuana Act, and the Medical Marihuana Facilities Licensing Act.  These amendments authorized the state Marijuana Regulatory Agency to approve Court-Appointed Receivers to operate businesses in the industry.

State-court receivership is often referred to, colloquially but inaccurately, as state-court bankruptcy.  Lenders can request the appointment of a receiver to operate, sell or liquidate a borrower in the marijuana business.  It can also give the debtor breathing space from some of its creditors, much like the automatic stay in bankruptcy.  Not surprisingly, Crain’s Detroit Business recently reported that at least five Michigan marijuana operators are under receivership in different courts throughout the state. The largest is being overseen by a long-time bankruptcy trustee and experienced receiver.

For creditors, it is important that your loan documents provide for the appointment of a receiver when your borrower defaults.  To discuss your rights, recover money you are owed, or draft loan documents that best protect your interests, contact the experienced attorneys at Dalton & Tomich today.

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