Receivership in the Cannabis Sector: Michigan’s Alternative to Bankruptcy

Despite achieving unprecedented growth, with sales reaching new highs in 2023, many Michigan cannabis businesses find themselves navigating a precarious path to profitability. This dichotomy between soaring demand and the financial struggle of retailers and growers underscores a complex challenge within the sector.

In this challenging environment, while cannabis businesses are increasingly confronted with the need to restructure, the option of bankruptcy remains off the table due to federal law. However, receivership under Michigan law is an effective mechanism through which cannabis businesses, investors and lenders, and state regulatory agencies can address financial and operational struggles in the industry in an organized fashion, and maximize value for creditors in the process.

The Profitability Paradox in Michigan's Cannabis Industry

Michigan's cannabis industry has witnessed a meteoric rise, with sales reaching unprecedented levels in recent years. The legalization of cannabis for both medical and recreational use has opened the floodgates to a burgeoning market, one that has rapidly become a significant economic force within the state. In 2023, the industry's sales soared, a testament to the high demand and widespread acceptance of cannabis among consumers. Michigan's cannabis industry sold $3 billion in both recreational and medical cannabis in 2023, making it the second biggest cannabis market in the U.S. behind California.

However, beneath the surface of these record sales figures lies a more complicated reality. Many cannabis businesses, especially retailers and growers, find themselves wrestling with profitability challenges. Despite the booming market, these entities face a plethora of pressures that threaten their financial stability. The cost of compliance with state regulations, competition from the black market, unavailability of certain federal tax exemptions, and a saturated marketplace have led to shrinking margins for many businesses.

As prices continue to fall due to market oversaturation and competition, the profitability for many of these businesses becomes increasingly elusive. This economic pressure has placed many businesses in a position where restructuring becomes not just an option but a necessity for survival. Yet, with bankruptcy not an option due to the federal classification of cannabis as an illegal drug, these businesses must look towards alternative solutions to navigate their financial difficulties.

The landscape of Michigan's cannabis industry is thus one of contrast—high demand but also a need for financial sustainability. It is within this context that receivership has emerged as a critical tool for restructuring, offering a pathway for businesses to address their struggles.

Receivership as a Viable Alternative

As Michigan’s cannabis industry grapples with the complexities of growth amidst financial constraints, the concept of receivership stands out as a pivotal restructuring and liquidation tool. Unlike bankruptcy, which offers a broad spectrum of protections and relief under federal law, receivership operates within the state’s legal framework, providing a tailored solution for businesses that find themselves outside the reach of federal bankruptcy due to the federal illegality of cannabis.

Receivership involves the appointment of a receiver—a court-appointed individual or entity tasked with taking control of the financially distressed company's assets and operations. This process is initiated through a legal action, often by a creditor seeking to recover debts owed. The receiver’s mandate is to manage the company's assets in a manner that maximizes value for creditors, which may involve continuing business operations, liquidating assets, and/or negotiating with creditors and stakeholders to settle debts. The process culminates in the repayment of debts and, ultimately, the termination of the receivership, marking the conclusion of the receiver's stewardship of the company's assets.

In 2020, Michigan amended the Michigan Regulation and Taxation of Marihuana Act and the Medical Marihuana Facilities Licensing Act to pave the way for the Cannabis Regulatory Agency (CRA) to authorize the operation of a licensed cannabis business by a court-appointed receiver or trustee.

This legislative response acknowledges the critical gap left by the inaccessibility of federal bankruptcy protections for cannabis businesses. By allowing state court judges to appoint receivers or trustees, Michigan offers a structured alternative for the resolution of financial distress within the cannabis industry.

The Receivership Process

Receiverships for cannabis companies remain a fluid process in this nascent industry. Companies, courts, and regulatory agencies are all adapting in this environment. We have gained unique experience in this field by serving as counsel to the receiver in two major cannabis receivership cases, including the high-profile and challenging receivership of Skymint, one of Michigan’s largest cannabis brands, as well as retailer Comco.

In many respects, the receivership process for a cannabis business in Michigan is the same as it is for any other business. However, there are some important distinctions, as we address below.

Here are some of the key components of the receivership process:

1. Appointment of a receiver: A court selects a receiver, usually upon a secured creditor's lawsuit, to take charge of the distressed company's assets and oversee its operations. This crucial first step ensures that an experienced party guides the business through its financial turbulence.

2. Assuming control: Upon appointment, the receiver gains control of the company’s assets, from real estate to inventory. Their role may extend beyond mere asset management to include steering the company’s daily operations, setting the stage for stabilization or asset liquidation.

3. Asset management: The receiver’s key responsibility is to safeguard and strategically manage the company's assets. Whether by sustaining business operations, selling off assets, or implementing other value-maximizing strategies, their goal is to serve the creditors' best interests.

4. Repayment of debts: Receivers work diligently to address the company’s debts, giving priority to secured creditors but also engaging with unsecured creditors—like suppliers and employees—to negotiate debt settlements, striving for equitable solutions.

5. Litigation: Receivership can involve navigating complex legal challenges, from defending the company against claims to initiating litigation to recover assets.

6. Reporting: The receiver is obligated to keep the court informed, providing regular updates on the receivership’s progress and the status of asset disposition. This transparency is key to maintaining the process's integrity and accountability.

7. Termination of receivership: The receivership process ends when the receiver has successfully discharged their duties—asset disposition and debt repayment—or when the court deems the process complete.

The receivership process in Michigan's cannabis industry is significantly influenced by its regulatory environment, presenting challenges and considerations distinct from other sectors. Not only must the receiver keep the Court and other parties to the legal action informed of their status, but the receiver is also charged with reporting key updates to other third parties. Specifically, receivers must navigate stringent reporting requirements, including obligations to the CRA, and in some cases, the Michigan Department of Attorney General. These reporting duties underscore the heightened level of oversight and accountability expected in the cannabis industry.

The sale of cannabis-related assets adds another layer of regulatory complexity, requiring not just a willing buyer but one that has also secured the necessary licensing and approval from the CRA. This stipulation complicates what might otherwise be straightforward asset liquidation. Moreover, the receiver's operational duties are further complicated by CRA guidelines, such as needing approval for the mere relocation of cannabis products, even absent a formal sale. Further, in the event the receiver seeks to change the business model or modify the structure of a cannabis business, the necessary approvals must be received.

These unique hurdles necessitate a nuanced approach to receivership in the cannabis sector, underscoring the importance of specialized knowledge and experience in navigating both legal and regulatory frameworks. As the industry continues to evolve, so too will the strategies for managing its financial distress, with each receivership case contributing to a growing body of precedent and practice in this dynamic field.


As the Michigan cannabis industry continues to navigate the delicate balance between booming sales and financial sustainability, the role of receivership as a restructuring tool has become increasingly critical. This process, distinctly shaped by the state's regulatory environment, offers a viable path for businesses grappling with the constraints imposed by federal law. If you have any questions or require assistance, please contact Amanda Vintevoghel.