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' which 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.
The Challenges
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.
THE DO’S Banking Requirements
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. THE
DON’TS 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.
*Kevin Singer is a principle at Receivership Specialists who has
served as a Receiver, Referee and Trustee for over 16 years and in over
272 cases. Mr. Singer has been appointed and has offices in California,
Arizona, Nevada and Colorado.
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