Navigating License Transfers in Michigan Cannabis Receiverships

When a cannabis company in Michigan enters receivership, transferring licenses and inventory as part of a sale process presents unique challenges due to strict regulations governing cannabis licenses and the handling of inventory. For receivers managing these cases, understanding how to properly transfer licenses and assets is crucial. Let’s explore some of the key issues surrounding license transfers in cannabis receiverships, including regulatory constraints, timing challenges, and practical solutions.

Regulatory Landscape and Challenges in Asset Sales

The Cannabis Regulatory Agency (CRA) in Michigan has established strict rules governing cannabis businesses, which play an important role in receivership proceedings. The rules, particularly those that impact the sale of assets in a receivership, can add significant complexity and uncertainty to the process. Indeed, a sale requires not just a willing buyer, but one that has also secured the necessary licensing and approval from the CRA.

One of the primary CRA regulations that can complicate a receivership sale process of a going concern is the prohibition on two different companies from holding active licenses at the same location. This rule, designed to maintain clear accountability, creates challenges during ownership transitions, particularly during the period between the termination of the distressed company's license and the activation of a buyer's license. During this period, the seller no longer has the right to possess the inventory, the buyer doesn't yet have the legal authority to take possession, and CRA regulations don't permit this "ownerless" status for cannabis products.

Even after a sale is agreed upon, the buyer must still complete the CRA's licensing process. This includes CRA inspections of the premises, administrative reviews, and approvals. Potential delays can extend the problematic transition period, further complicating the process.

As we’ve learned while representing receivers in large, complex receiverships of cannabis businesses in Michigan, these challenges require receivers and their professionals to develop creative solutions in collaboration with the CRA, the Attorney General's office, and all involved parties to ensure compliance while facilitating necessary asset transfers.

Collaborative Solutions with Regulatory Bodies

The various challenges that arise in cannabis receiverships require receivers and their professionals to develop creative solutions in collaboration with the CRA, the Attorney General's office, and all involved parties to ensure compliance while facilitating necessary asset transfers.

When addressing the challenges specific to license transfers in cannabis receiverships, several strategies have proven effective in our experience. These approaches involve close cooperation with regulatory bodies and creative problem-solving:

For example, in the case of multiple-license scenarios, receivers can coordinate with the CRA to move inventory between licensed locations. This allows for a staggered approach to license termination and activation. Receivers can also work with buyers to synchronize the termination of the seller's licenses with the activation of the buyer's licenses, minimizing gaps in licensed ownership.

In single-license scenarios, receivers may be able to negotiate with the CRA and Attorney General's office for a consent order. This legal agreement allows for temporary arrangements that bridge the gap between license termination and activation. In some cases, the seller's license can be placed in a "closed pending" status, where the seller retains responsibility for the inventory, but no products can enter or leave the location until METRC reconciliation is complete.

In general, navigating the various issues that may arise in cannabis license transfers in receivership requires careful planning and execution. In our experience, here are a few important steps to keep in mind:

1. Engage early with regulators and establish open lines of communication.

2. Conduct thorough due diligence on all licenses and their current status.

3. Encourage potential buyers to begin the licensing process early.

4. Develop detailed transition plans that align with CRA processes and court approvals.

5. Continue to ensure METRC records are current through any proposed sale closing date.

Conclusion

By carefully managing license transfers in receivership proceedings, receivers and their advisors can play an important role in preserving asset value and protecting creditor interests in receiverships involving Michigan cannabis companies. The process requires experienced professionals and a nuanced approach, balancing regulatory compliance, strategic planning, and stakeholder management. If you have any questions about the receivership process for Michigan cannabis companies, please contact Amanda Vintevoghel.