Receivership Sales in the California Cannabis Industry

Buying a Cannabis Business in Receivership: Risks, Opportunities & How It Differs from a Traditional Deal

Entering the California cannabis market through a receivership sale can be both promising and
complex. Cannabis businesses cannot access federal bankruptcy relief, so troubled companies
often go to state courts to liquidate under a receiver’s oversight. For investors or operators, this
creates cannabis receivership sales — court-approved auctions of distressed assets. While these
sales can offer steep discounts, they also carry unique legal and regulatory challenges. An
experienced California cannabis receivership attorney can help you navigate this terrain,
maximize value, and avoid pitfalls.

What Is a Cannabis Receivership Sale?

A receivership sale is a court-ordered process where an impartial receiver takes control of a
troubled business to sell its assets for creditors’ benefit. In cannabis, this has become common
because federal law still bans Chapter 11 bankruptcy for state-licensed operators. Licensed
cannabis companies in California facing debt or legal issues often end up in receivership,
overseen by specialists (e.g. court-appointed trustees). The receiver organizes a disciplined sale
or auction of the business as a going concern, ideally preserving license status and customer base
to maximize price.

Unlike a private sale negotiated between seller and buyer, receivership sales are transparent,
public processes. The court sets bidding rules and a sale timeline. Interested buyers receive
access to a data room (with an NDA) and must meet proof-of-funds requirements. A structured
auction (sometimes with a “stalking horse” bid) is common. By the deadline, the highest
qualified bid is submitted and the judge decides whether to approve the sale. This process can
produce multiple bids and even go above market value.

Risks of Buying in Receivership

Buying a cannabis business in receivership carries special risks that differ from a traditional
acquisition:
• Limited Warranty and Due Diligence: Receivers typically sell assets as-is. You may
get less disclosure than in a private deal. Thorough due diligence is critical. An attorney
will comb through compliance records, contracts, and financials to uncover hidden
liabilities (e.g. unpaid taxes, vendor claims or latent regulatory fines).
• Regulatory Compliance: California cannabis licenses are non-transferable without
local governmental approvals. After a receivership sale, the buyer must work with the Department of
Cannabis Control (DCC) and local regulators to change ownership. If the license sits in
the acquired entity, an equity-type sale is usually required. These regulatory steps can
delay closing and carry risk (the DCC or a city might refuse a transfer). Our team
monitors all license issues early on to smooth the transfer.
• Financing and Approval Delays: Bank loans are scarce in cannabis M&A, and court
timelines are fixed. Buyers should have financing lined up and be ready to close quickly
after the auction. If a winning bidder can’t close (e.g. financing falls through), the sale
may revert or require a re-auction. We provide bidders with secure escrow arrangements
and suitable deposit protections.
• Complex Ownership Structure: The assets may be held by multiple subsidiaries or
have layered liens. In a receivership, creditors’ claims must be resolved or stripped out by
court order. Buyers get “free and clear” title to most assets, but your attorney should
confirm which liabilities (tax, labor, environmental) stick with the business.
• Court-Driven Process: You must follow the court-approved bid procedures exactly. This
is less flexible than private deal-making. Our lawyers prepare the required documents
(proof of funds, qualification statements) and liaise with the receiver’s counsel to avoid
disqualification. We also review any stalking-horse bid terms or breakup fees to protect
your interests.

Despite these challenges, many of these risks can be mitigated by early legal planning and expert
guidance.

Opportunities of a Receivership Sale

For savvy buyers, receivership auctions can unlock exceptional value and strategic benefits:

• Deep Discounts: Distressed assets often trade at well below replacement cost. Buyers
have acquired fully-licensed dispensaries, cultivation facilities, and brands at significant
discounts compared to healthy-market valuations. When managed right, even a stressed
sale can approach fair market value – far above a “fire sale” price.
• Clean Title: A major upside is the court-supervised aspect. Purchased assets typically
transfer free of liens and encumbrances, as long as they were properly disclosed. This
means buyers obtain clean ownership and avoid inheriting prior debts (saving legal
headaches later).
• Turnkey Operations: Many receiverships allow the business to keep running (staff kept
on, inventory sold) through closing. For buyers, this means immediate cash flow and a
smoother transition. You’re not buying an empty shell — often the licenses, real estate,
equipment, and even brand goodwill stay intact.
• Access to Scarce Licenses: Local regulators tightly cap new licenses. Acquiring an existing
licensed business via receivership may be the only way to secure certain dispensary or
grow licenses. Buyers can vault into regulated markets or distribution networks that
would otherwise be locked.
• Competitive Process: Unlike negotiated deals, auctions can stir multiple bidders. By
structuring the sale process (marketing broadly, setting clear rules, using stalking-horse
bids), the broker Green Life Business Group has generated dozens of offers. This
competitive pressure often pushes prices higher — a win for sellers and (paradoxically)
for a shrewd buyer willing to pay market value.

These opportunities, combined with diligent legal preparation, make receivership purchases a
powerful cannabis M&A strategy. As Green Life Business Group emphasizes, a well-run
process lets everyone win: “creditors get fair recoveries, buyers capture real upside, and the
industry keeps valuable assets as going concerns.”

How Receivership Deals Differ from Traditional Transactions

Receivership transactions diverge from standard M&A in several key ways:
• Court Supervision: The process is governed by court orders and judges. Every step –
from marketing to final bid approval – must satisfy legal standards. In a private sale, you
might handle negotiations quietly. In receivership, the sale timeline and procedures are
public, set in advance, and subject to judicial review.
• Bidding vs. Negotiation: Instead of negotiating price directly with a seller, buyers
submit sealed bids by a deadline. The highest qualifying bid usually wins, subject to
judge approval. This can be faster (no drawn-out back-and-forth) but less flexible (you
must act on the set schedule).
• Asset Packaging: The receiver packages assets for auction, often in one portfolio or
defined lots (e.g. one dispensary, or multiple licenses together). This differs from
traditional deals where buyers tailor exactly what to buy. Due to California’s nontransferable licensing, receivers often emphasize equity-style sales of license-holding entities.
• Deal Documents: You will use receiver-prepared bid procedures and often a form
purchase agreement or order. Our attorneys help negotiate any bid conditions and then
draft a final asset purchase or membership sale agreement to submit with your offer.
• Regulatory Handling: Even after court approval, the new ownership must obtain
change-of-ownership approvals from regulators. Unlike an ordinary M&A, you cannot
close and operate immediately on many licenses until the DCC and local authorities
approve the transfer. We coordinate with regulators ahead of closing to streamline
this step.
• Transparency: Receiverships demand transparency. The receiver must show the court it
conducted a fair sale. All interested parties (creditors, the judge) see that the process is
competitive. For buyers, this can actually provide reassurance that the asset price is fully
tested. In short, a cannabis receivership sale blends M&A practices with bankruptcy-like oversight.
Buyers should expect more structure and documentation than a typical private acquisition. But
the legal guidance from experienced counsel can make the path clear and efficient.

Legal Guidance for Cannabis Buyers

A seasoned cannabis attorney is essential to navigating a receivership purchase. Wicker Law
Group brings comprehensive support throughout:
• Deal Structuring: We advise whether to pursue an asset purchase or membership
(equity) sale given California’s rules. (Our guide on asset vs. equity sales explains the
differences for cannabis deals.) We craft bids and submit them under the court’s
required procedures.
• Due Diligence: Our team conducts rigorous due diligence – legal, and
regulatory. We look for compliance red flags, lease assignability, intellectual property
status, labor and environmental liabilities. For example, knowing whether
all city and state permits are transferable is critical. We also prepare any confidentiality
agreements and manage the secure data room access.
• Contract Negotiation: Once a bid is accepted, we negotiate and draft the purchase
agreement. This includes tailored representations, warranties, indemnities and closing
conditions. We provide protections like escrow and liability carve-outs for any surprises.
In receiverships, it’s especially important to define exactly which liabilities the buyer
assumes (the rest stay with the estate).
• Regulatory & Compliance Work: We coordinate the license transfer process, preparing
all DCC change-of-ownership filings and addressing local approval requirements. Our
legal team assists with lease assignments or property purchases as needed. Meanwhile, our knowledge of Regulatory Compliance helps us
guide your business through state and local rules so the transition is lawful and smooth.
• Escrow and Closing: We manage escrow instructions and closings to align with court
deadlines. Our attorneys also attend the court sale hearing, presenting your bid and
answering judges’ questions if needed. After closing, we handle the final regulatory
filings and corporate formalities (e.g. updating LLC operating agreements) so you can
take control immediately.

Wicker Law Group’s full-service approach – from negotiating purchase agreements to
regulatory compliance – provides expert legal support at every step. Our lawyers serve
as general counsel to cannabis businesses across California, providing ongoing advice beyond
the closing.

Partnering with Industry Experts

Navigating a cannabis receivership deal often involves both legal and brokerage expertise.
Green Life Business Group is the industry’s leading broker in this space. They have
engineered high-profile cannabis receivership sales – for example, the recent State House
(Harborside/Urbn Leaf) portfolio, possibly the largest cannabis receivership deal ever. Green
Life’s process drew dozens of bids and reset the market for distressed cannabis assets. In another
case, they managed the High Times brand liquidation, generating 36 offers in just 17 days.
Wicker Law Group works with Green Life and welcomes collaboration. When our
clients work with brokers on receivership sales, we coordinate closely. For instance, we can help structure a
stalking-horse bid or respond to Q&A in the data room. Together, a broker’s sales acumen and our legal guidance maximize value for all
stakeholders.

For more on structuring successful receivership sales, see our Cannabis Considered blog post
“National Cannabis Receiverships: How to Truly Maximize Asset Value” by Green Life Business
Group’s CEO.

Conclusion

Buying a cannabis business in receivership can be a savvy move in California’s evolving market. You gain access to licensed operations at potentially significant discounts and “free and clear” title, but you also face deadlines, regulatory hurdles, and complex bidding
procedures. Engaging a cannabis M&A attorney is essential. Wicker Law Group’s
experienced team will help you assess risks, seize opportunities, and close your deal under favorable terms.

If you’re considering a receivership acquisition (or any cannabis M&A), contact Wicker Law
Group for guidance. Our lawyers will walk you through the process, coordinate with brokers,
and work to turn a distressed sale into a successful investment. Call us at (760) 735-6100 or visit
our Contact page to get started on your cannabis business transaction.