Cannabis Law Glossary
Cannabis Receivership
Definition
A court-supervised process to manage a distressed cannabis company's assets, complicated by the fact that federal courts may refuse to administer a Schedule I cannabis business.
Cannabis Receivership
A receivership is a legal remedy where a court appoints a neutral third party — the receiver — to take control of a distressed company's assets, operate the business, and distribute proceeds to creditors or stakeholders. In cannabis, receiverships are uniquely complicated by federal law.
The Federal Court Problem
Article III federal courts have generally refused to appoint receivers to manage Schedule I cannabis businesses, on the grounds that doing so would require the court to supervise illegal activity under federal law. This forces cannabis receiverships into state court — which has jurisdiction over state-licensed entities but may lack the efficiency of federal bankruptcy proceedings.
Cannabis Cannot Use Bankruptcy
Federal bankruptcy courts (which are Article I courts) have similarly declined to allow cannabis companies to file for Chapter 7 or Chapter 11 protection, because the bankruptcy estate would include Schedule I assets. Cannabis companies in financial distress must rely entirely on state law remedies.
State-Level Solutions
Several states with mature cannabis markets have developed specific receivership statutes or judicial precedents governing cannabis company distress. Working with licensed cannabis receivers who understand both state regulatory requirements and creditor rights is critical.
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