The Do’s and Don’ts of Medical Marijuana Receiverships
October 18, 2016 | Geoff Marshall
By Kevin Singer for Receivership News
This Article features a summary of Federal medical cannabis law which is republished, with permission, from ASA's website.
With over 25 states passing medical marijuana laws, there seems to be an abundance of these businesses already in existence and continuing to pop-up throughout the United States. It is only a matter of time before the United States Federal Government takes marijuana off its illegal drug list and marijuana is once again legalized. Yes, marijuana was legal in the United States until 1937, when legislation was passed which forbade interstate transfers. Americans have a long history with marijuana going all the way back to George Washington who grew hemp on his farm.
The marijuana business is ripe for receivership appointments since there tends to be non-cohesive partnerships involving a cash business. The cash allows for easy mismanagement and theft. The conflict amongst partners leads to disputes, which leads to litigation, which ultimately leads to the appointment of a receiver to protect and preserve the business while the parties litigate for control. These receiverships are not for the faint-hearted since there are many moving parts and they deal almost exclusively in cash. Most banks do not want to handle any type of marijuana business because of the conflict between federal and state laws.
However, medical marijuana businesses can be rewarding to manage since they employ large dedicated staffs and can be profitable if run correctly. Those patients who have critical ailments will constantly tell you how important you are to their lives and the how the medicine has improved their lives. Some of the operations will have or be associated with a “Grow,” which grows the plants that will be turned into medicine. Most dispensaries sell buds (which are flowers on the plant), trim (which is the leaves), and oil (which is the marijuana turned to a liquid form). The oil can be cooked into a brittle product called Shatter or left in its oil form to be infused into food products. Most full service dispensaries will also have a kitchen to create the foods that will be infused with marijuana. In a well-run operation, all of the products will be tested at a certified lab. The lab will determinate potency which will be put on the label of the medicine.
I did an internet search and could not find one death from overdosing on marijuana. I did find an April 13, 2014 article from the Huffington Post that read: Marijuana Deaths Congressman Reminds Us How Many People Have Overdosed On Pot: 'Spoiler Alert: It's Zero' whch was written by Gregory Krieg. I am currently serving as a state court receiver over three dispensaries, a grow operation, and a kitchen. In order to help my comrades in receivership when they get appointed over one of these businesses, I want to share the challenges - the do’s and the don’ts of receiverships over medical marijuana receiverships.
Each state has its own set of rules and regulations over medical marijuana. Depending on the state you are appointed in, you will have to know those rules and regulations. I have found that no two states have the exact same rules and regulations. Often in order to be able to use the license that will allow a receiver to run and operate a dispensary, grow operation or kitchen, you will need to be a resident of that state. However, this can usually be accommodated for by having your local project manager hold the license while working directly for you. For employees, they often need the state to issue them a card or license to work in the dispensaries, grow operations and kitchens. This will often require fingerprinting and a background check. If any employees have been convicted of a felony, they will most likely not be issued a card.
Your patients or customers will also be required to present a state issued card. These cards are obtained by getting a licensed physician to write a prescription. Most dispensaries have a physician on call to evaluate patients, write prescriptions and respond to emergencies.
As previously mentioned, most banks will not want to handle your business, so you will be forced to take cash. A cash only business will require special accounting procedures to be implemented and will require procedures to prevent theft. You will most likely have to pay lawyers, accountants, employees, labor department, state taxing agencies and the Internal Revenue Service in cash. And, “yes,” you will most likely have to pay your fees in cash as well.
This a labor intensive business with large staffs of employees with the capabilities of growing, harvesting, baking, cooking, purchasing, packaging, transporting, consulting with patients, accounting, regulating and providing security. Most of these positions require highly trained staff with many years of education and experience. The staff who sells the medicine must be familiar with a wide variety of ailments and be able to prescribe the best medicine to treat the ailments. This involves knowledge of hundreds of strands of marijuana and the best strand to treat each ailment. To staff this type of business without any existing employees could be difficult.
When you are approached for this type of receivership appointment, make sure that the court order does not require you to put the revenue in a licensed and insured bank. This would be an order you would be challenged to comply with at this time because almost all banks will not handle money associated with marijuana. Because this is a cash business, the order should also include a provision that neither the receiver, nor the receiver’s bond, is responsible for stolen funds that was not due to negligence. Of course, as receiver you must always do your best to protect and preserve the funds.
Hire the Right Professionals
You will most certainly want in the court order that you have the right to not only hire civil counsel to represent you, but also criminal counsel if the need arises. I highly recommend choosing local counsel that has knowledge of local laws and relationships in the community. This is particularly helpful when you are not sure of the legality of an action you are thinking of taking and first want to vet it with those who are familiar with the laws. You will also want a certified public accountant who understand this business and can help you comply with state and federal tax laws. A competent project manager is also important since the manager will be at the businesses almost all times and handling tens of thousands of dollars in cash You must surround yourself with highly trustworthy and knowledge people.
Meet with Government Officials
When you get appointed, take your court order and go meet with the government officials who are in charge of administering these types of businesses. Typically you will walk out of that meeting with a clearer understanding of what you must do to stay in compliance and run the business.
Sweep the Cash
The business should be swept of cash on at least a daily basis. If it is a high volume business, it should be swept several times a day and never at the same times. The excess cash will need to be kept in multiple safe vaults in different locations. This will avoid one large theft of all the excess cash. Having a good insurance policy will also provide protection. There are insurance companies that are writing product liability insurance for medical marijuana businesses.
Educate the Community
Lastly, make sure your business is involved in the community, and constantly educating the citizens how your business is of benefit to the community. One of the education programs we have conducted includes closing down the dispensary for a few hours and inviting city leadership and law enforcement to attend a private presentation at the business. At the program presentations, tours and testimonials are given by the medical doctor, grow staff, patient consultants, kitchen staff, security and patients. We have found that after this type of program, many of the taboos and misnomers are dispelled.
Don’t take one of these assignment until you are familiar with all laws regarding running and operating a medical marijuana dispensary. You should review federal, state, county and city laws and ordinances that govern the operations of these businesses. Don’t hire a support team who has never run or been involved in these types of businesses. Make sure that management, staff, bookkeepers, accountants and attorneys that you hire have experience in this type of business. This is a business that is unique and needs professionals who are specialized to make it successful. There will be accounting and legal questions that need to be addressed and it is not always crystal clear what regulation or law applies. Don’t take over this type of business without a well thought out business plan. These businesses tend to have large staffs and if you do not have a plan to execute on from day one, the staff will lose faith in you quickly and sales will drop.
Finally, parties will sometime request that you not report all the cash collected or run some of their personal expenses through the business. As you know, don’t do it. Do not represent a marijuana business as anything other then what it is. As court receivers, we are officers of the court who are tasked with carrying out the court’s orders while protecting and preserving the business.