[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”1/1″ tablet_text_alignment=”default” phone_text_alignment=”default”][vc_column_text]By Joshua D. Feil
It is difficult to drive around any town in Oregon without noticing the amount of marijuana dispensaries that have cropped up all over the state. Since Oregon legalized marijuana in 2014, the number of licensed growing facilities, processors and dispensaries continue to increase. Given how the industry has grown, several of you may be in business with marijuana-related businesses (“MRBs”), for example, by leasing property to them or by loaning them money. If you are doing business with an MRB, then at one time or another, an MRB may owe you money. As the recreational market stabilizes, it is possible that some of these MRBs will likely run into financial trouble and even fail.
However, marijuana’s continued illegality under federal law and its intensive state regulation mean that there is a risk that, as a creditor of an MRB, you may have limited remedies to collect any money owed to you. You cannot seize and sell the main asset of an MRB—its inventory—or collect income from the sale of marijuana unless you have a proper license from the Oregon Liquor Control Commission (“OLCC”), which oversees recreational marijuana licensing in Oregon. Furthermore, cash businesses are difficult to collect against, and because of federal restrictions on MRBs’ ability to use banks, MRBs are cash businesses. Until recently, Oregon had not revised its laws to account for this. Additionally, because federal courts have ruled that MRBs cannot file bankruptcy, creditors cannot receive any protection under federal bankruptcy laws.
A possible solution for a creditor would be a receiver—a court-appointed third party with power to oversee the MRB, manage its business, sell its assets, and make payments to creditors. The recently-passed Senate Bill 899A (2017) (the “Bill”), which rewrote and revamped Oregon receivership law, likely enhances the receiver’s effectiveness in collecting against an MRB. As explained in last quarter’s issue, starting January 1, 2018, receiverships will be easier to obtain and will be more effective tools when dealing with issues that arise when any debtor is not paying. The Bill gives courts greater guidance with regard to the appointment of receivers and the receivers’ powers. The Bill is similar in some ways to the U.S. Bankruptcy Code, in that it provides for an automatic stay (in some circumstances) and provides a process for obtaining court approval to pay the creditors’ claims against the debtor. It further allows a receiver to continue operating a business and, with court approval, sell assets to obtain greater liquidity.
How might the Bill solve some of the issues a client may face when dealing with a MRB? Because the Bill has not become law yet, it is not completely clear. The OLCC has at least anticipated the possible use of a receiver for a licensed MRB in its regulations. However, how the OLCC handles the receivership remains to be seen.
Because the Bill’s drafters drew on Washington’s receivership statute in revising and clarifying Oregon receivership law, we can get some idea of how creditors might use receiverships by looking to their use in similar situations in Washington. The Washington State Liquor and Cannabis Board (“WSLCB”), the Washington equivalent of the OLCC, similarly has regulations referencing receiverships. Law firms representing creditors, judgment creditors and/or landlords of MRBs in Washington worked closely and communicated often with the WSLCB throughout the receivership process, including for selection of the actual receiver. By communicating and cooperating with WSLCB, the attorneys preserved the judgment debtor’s marijuana license throughout the receivership and managed to collect on their clients’ judgments against the MRB.
The OLCC’s regulations are even more detailed about the ability of a receiver to take control of and operate a MRB than are the WSLCB’s. OLCC regulations suggest that an Oregon receiver would be able to temporarily operate a MRB for purposes of “orderly disposition of the business.” Therefore, while not entirely certain, it seems likely that a creditor will be able to use the new receivership law in collection efforts against MRBs. Similarly to how the Washington attorneys worked with the WSLCB, cooperation and communication with the OLCC would be essential in ensuring compliance and navigating the receivership process when a MRB is involved.
At the very least, the Bill should provide protections in a state court receivership proceeding against a MRB similar to those of the U.S. Bankruptcy Code. Through the receivership, the court would oversee either a liquidation of the MRB or its continued operation until either the MRB or its assets can be sold. The receiver, under its court-given powers and the OLCC regulations, would liquidate the inventory or continue to operate using the business’s license to maximize return on the inventory or otherwise to wind down the business. The court would then manage creditor claims against the MRB and payment of those claims as the MRB and/or its assets are liquidated.
This area of the law is still developing. It is possible that the OLCC might issue new complementary and/or supplemental regulations in response to the new receivership statute. The lawyers at Saalfeld Griggs P.C. will continue to track developments and updates to Oregon’s receivership process and law and its potential use and benefit to our clients.[/vc_column_text][/vc_column][/vc_row]