© Mark Fairey | Dreamstime.com

Many of us enter the field of cannabis cultivation because we care deeply about cannabis. We know and appreciate the medical and health benefits of the plant. We’ve seen first-hand how cannabis can positively affect the health of our friends, family, clients and patients.

Few might consider the business aspect of owning a grow facility, and if they do, oftentimes it’s by finding a business partner who can handle “the business end of things.” Doing that, however, can lead you into all sorts of trouble.

Imagine this scenario: Everything goes smoothly, and the business is making money — lots of money. The cannabis industry is largely cash-based, and there is always a lot of money around. All this cash can be a big temptation. Cannabis business owners pay a few expenses with cash and might forget to write them all down. They might allow an employee (or two) to take a cash advance. Because there is so much cash, it’s easy to get a little careless and forget to keep track of where all the money goes. Before realizing what’s happening and getting things under control, accusations are made on both sides, and the partnership begins to fall apart. The lack of financial communication, while not intentionally malicious, may lead to insolvency and the inability to pay bills.

When this happens, or any of a variety of similar situations where business partners are at serious odds, it is very important that the business partners try their best to work things out. If they are unable to calmly and rationally talk with each other, it is imperative that they bring in someone to help them fix the business before it’s too late.

Business Consultants and Management Teams

The first option might be to hire a business consultant. A business consultant, in this case, is an advisor who can make suggestions designed the help the business get back on track. A good business consultant will offer solutions for all aspects of the business, not just how to handle cash.

If the partners agree with the business consultant’s suggestions, and these suggestions can be implemented, it is quite possible that this will be all that is needed to get the business back on track.

If, however, the business consultant makes suggestions for improving the business and even just one partner decides not to abide by these suggestions, it’s as if the business consultant was not hired at all. It is critical that the suggestions made are followed, or it’s just a waste of time and money.

Depending on the business size and the available budget for getting the business back on track, a business-management team may be a better option than a business consultant for getting the best results.

As might be expected, a management team may be able to get results faster and more effectively than a single business consultant. Again, the efficacy of the team depends on the willingness of the partners to allow the management team to perform their jobs and implement the changes designed to save the business.

If neither the business consultant nor the management company can help the business, one partner may decide to take legal action against the other partner to preserve the integrity of the business. If this happens, the partners may elect to attend mediation. This can be a good solution if the partners are on reasonably good terms.

Mediation

Mediation, as it relates to this kind of case, is a form of dispute resolution with legally enforceable results. This gives the suggestions made by the mediator “more teeth” than a business consultant. Typically, the mediator is an unbiased third party hired to help the business partners negotiate a settlement.

For mediation to be effective, both parties must be willing to work things out. As long as the business partners are getting along, mediation will work and can be a viable solution for preserving the business assets and the business entity itself.

Through the mediation process, both parties can share their perspectives on the business challenges currently being faced. With the guidance of the mediator, the conflicting parties can reach a solution that will enable the business to continue and both parties to receive compensation or a business percentage that will satisfy everyone involved in the dispute.

Through this process, the business can be preserved and the partnership often can be saved. But only if the partners are willing to work together and let the mediator guide them to a fair and equitable solution.

If the partners are unable to reach a working solution through mediation, solutions for working things out together become much more limited and could result in a buyout or going to court. If this happens, the business may legally be forced to give total control to another entity, known as a court receiver.

Court Receivers

A court receiver can be appointed to manage a business when the partners are in litigation with each other and the demise of the business is imminent. One of the parties (typically the plaintiff) will have his legal counsel file a motion with the court to appoint a receiver over the business. It is considered the last line of defense to protect and preserve the business.

In many cases, a court receiver can save the business. If the business involves cannabis, it is critical that the court receiver be well-versed in the unique requirements of a cannabis-based business. They must understand all aspects of growing, marketing and selling cannabis, and they need to be an advocate for your business. If the business includes a dispensary, it’s a good idea to make sure the court receiver appointed to your case understands the unique business aspects of running a dispensary and has experience with similar cases.

Before accepting the appointment of a court receiver, it is a good idea to make sure they meet the following basic requirements:

  • The licensing requirements of the cannabis industry may include residency requirements. This means that the court receiver, or the project manager engaged by the court receiver to manage your business, may have to be a resident of the state where your dispensary is located.
  • Each state where the sale of cannabis is legal has a unique set of rules and regulations. The court receiver must be aware of the legal requirements of the state in which your business is located.
  • When a dispensary is involved, the court receiver must understand the process your state uses to issue patient registration cards. They must know how to work with physicians who issue these cards as well.
  • Cultivation facilities are labor intensive, and many of your employees have specific training, education and experience in the cannabis industry. The court receiver must be able to manage your employees and cultivate an atmosphere that will encourage your business to flourish and grow.
  • The court receiver must be able to navigate the cannabis industry's banking requirements. Make sure the court receiver knows to omit the requirement of using a licensed and insured bank from any and all court orders related to the receivership. And the receiver must know to create (if possible) an insurance policy to protect and preserve your money.

These basic requirements to look for in a court receiver will increase the chances that your business will grow, and even thrive, while under receivership.

While many consider receivership to be the last line of defense to protect and preserve the business, the appointment of a court receiver can be an effective way to ensure your operation’s longevity. Remember, the court receiver is an officer of the court and is tasked with carrying out the court’s orders while protecting and preserving your business.

This information is not offered to suggest that we shouldn’t follow our dreams when it comes to cannabis cultivation, nor that we shouldn’t trust our business partners. It’s more that we need to ensure the longevity and profitability of our dreams. And we can do this by bringing in the right experts at the right time.

About the Authors: Kevin Singer is president of Receivership Specialists (www.receivershipspecialists.com), which specializes in handling all types of cannabis/marijuana businesses, including dispensaries, grow operations and infusion kitchens. Singer has served as a court-appointed Receiver/Referee in more than 285 cases in the past 16 years. Scott Yahraus is a Senior Project Manager with Receivership Specialists.