By Andy Turner
Earlier this month the Oklahoma legislature passed, and Governor Stitt signed, a new marijuana business receivership law which takes effect November 1, 2019. This law is known as SB 532.
As of Monday May 13, 2019, the Oklahoma Medical Marijuana Authority ("OMMA") had received over 5,400 business applications. Statistics show that 20% of new businesses fail within the first year. While bankruptcy may be an option for many of those, under federal law marijuana businesses are not entitled to seek relief under the Bankruptcy Code. See, e.g., In re Arenas, 535 B.R. 845 (10th Cir. BAP 2015).
So if faced with foreclosure on a medical marijuana business (or its assets) by a lender, landlord or investor, what are the legal options? One can try an out of court workout, but those are difficult given that near unanimity is required to get anything done. So that leaves state court litigation. In that case, what rules govern the marijuana inventory when the plaintiff is likely not licensed to handle it?
Oklahoma had no specific provisions governing marijuana receiverships. Other states, mostly those having legalized recreational marijuana some years back, have enacted specific receivership provisions applicable to marijuana businesses in their states. Those provisions range from simple to complex, with some requiring
separate licensing of the receiver. It seemed likely if the OMMA or other state authorities developed receivership provisions for marijuana businesses from scratch, they could prove to be overly restrictive or unworkable. So, Conner & Winters contacted the Oklahoma Legislature's marijuana working group and proposed that the State develop a marijuana receivership law that left substantial discretion to the receiver and to the court appointing the receiver. Hence, SB 532.
The new statute applies to marijuana businesses in Oklahoma - specifically, licensed medical marijuana dispensaries, commercial growers, or processors - and the marijuana items in their possession. The law provides general guidelines for receivers or secured parties in possession (i.e., through Article Nine foreclosure), whether appointed in litigation, under Article Nine or even in a probate proceeding. One goal was to provide that the receiver or secured party in possession may use the license of the subject business and need not obtain a license of his or her own; notice to the OMMA is required and the receiver must be otherwise qualified to hold a license in Oklahoma. Finally, the statute allows for liquidation or operation of the business as a going
concern so as to maximize the return to parties in interest. Accordingly, much flexibility is left to the court appointing the receiver.
Hopefully the state won't need marijuana receiverships; however, most anticipate that eventually we will. Now Oklahoma has a statute providing general guidelines while preserving flexibility and protecting against unwarranted future restrictions that could reduce the funds recovered. If you have any questions about this new law or its application, please feel free to contact any of the attorneys in our Medical Cannabis Industry Group.