Cannabis receivers can follow six steps that will guide them to a successful receivership

By Dotan Y. Melech

A cannabis receivership can be fraught with difficulties and uncertainties. Anyone who has accepted the task should have already considered what it will take and what they must know prior to getting involved. Once they are engaged in the process, however, there is a formula that they can follow that will keep them on track and set them up for success in the best way possible. I have developed the following six-step process filled with practical information that is invaluable to anyone working to find the best possible outcome for a cannabis business in distress and its owner, creditors and investors. The process is known by its acronym: R.I.P.P.E.R. 

This is the first step. The receiver must review every available record relating to the company. Financial records are incredibly important, as well as responses to any discovery requests or subpoenas. The state regulatory requirements and any previous cases that might be applicable to the case in question should be analyzed. This is the time to understand all of the problems facing the business.

This is a step that should not be overlooked. It gives the receiver the opportunity to learn beyond the review process. The receiver should first meet with regulators and ask them questions about the pertinent regulations and what they know about the problems facing the distressed business. Creditors or anyone who supports or objects to the appointment of the receiver should also be questioned. Interviews should be conducted with all involved parties: management in place or already removed, employees, key suppliers, third party management companies, and to the extent that it is possible, customers. The reputation of the business and its standard of service can be gleaned from speaking with parties that have done business with them.

Now that the records have been analyzed and all of the people surrounding the business have been interviewed, a high-level approach is best. The receiver should establish a timeline, determine the funding requirements and create a business plan with strategies, milestones and a structure for creating and delivering reports. The receiver will need a team of experts to help them, and who will do what and how they will be paid must be detailed. Will the business be liquidated? Will brokers need to be lined up? A plan with a precise focus is essential.

It is time to put the plan to the test. The receiver should remember that the plan is just the base and is subject to change. Adjustments will need to be made during the execution of the plan in order to manage changes to things like accounting and security, along with the ongoing need to remain compliant throughout the process.

This is when the receiver can review their progress and make those necessary adjustments as the new information is discovered. Best practice dictates operating with the understanding that the plan will be expected to change as new information is discovered. The receiver should evaluate themselves and their team of experts to reduce and avoid any unnecessary cost burden. A proactive evaluation strategy will keep any hole from getting deeper. Evaluating must be done quickly because resources will be limited and the receiver will be subjected to heavy scrutiny and held to a high standard as demanded by the court. Receiverships will fail if there is no self evaluation.

The receiver should regularly report their progress. They can maintain transparency by regularly reporting to the courts and proper authorities while being sensitive to confidential and potentially harmful information that might be detrimental to the value of the estate. Information can be disclosed in confidence or under seal in order to prevent further harm and a drop in value of the estate. 

At the end of the day, the receiver must remember that they are not involved simply to stitch things up. They will need to make the cuts necessary to bring about the best possible outcome for the distressed estate.

Considering becoming a receiver in the cannabis industry? Contact United CMC today for seasoned guidance on how to best navigate the process.