What is a Vendor Lien?

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When someone purchases real or personal property, they typically will do so either in cash, on a credit card or as part of a larger loan such as a mortgage. If a secured loan is used to finance the purchase price, then the actual property itself is used as collateral.

The most common example of this is a mortgage on real estate or a secured loan on a vehicle. Most people don’t have the financial means to purchase a home outright in cash. So, they turn to financial institutions to get a mortgage. The financial institution that provides the loan to the homeowner lends them the money needed to complete the purchase, takes a security interest against the home, and the borrower must pay back the money on a monthly basis in return.

Sometimes, though, borrowers can’t qualify for a traditional mortgage, so they look for alternative funding sources. In these situations, the seller may put a vendor’s lien on the property to protect the asset. Yet, vendor’s liens can also be used in other circumstances that involve personal property.

Below is a full explanation of what a vendor’s lien is, and how it works in a few different applications.

What’s a Vendor Lien?

Vendor’s liens serve as a claim for the seller on some type of personal property. The lien is a legal document that will give the seller the ability to repossess the property in question if certain conditions are met.

In most cases, the seller would try to repossess the personal property if the buyer doesn’t make payments according to the agreed-upon terms. If the seller does repossess the property, they would have a right to either hold onto it or sell it to someone else.

What Can Be Secured Through a Vendor Lien?

A vendor lien can technically be placed onto any personal property that’s being paid for by a loan. This could apply to real estate, an appliance for your house or a vehicle.

Each state has its own rules and regulations for what types of property may be secure through a vendor lien. Most commonly, though, they are applied to real estate, jewelers, storage facilities, vehicle repair shops, and financial institutions or banks.

In all of these cases, if the borrower or customer fails to make payment on the money they owe, the person or entity that holds the vendor lien will be able to repossess the property.

So, for example, if you fail to pay a repair bill on your car and the auto mechanic has a vendor lien on your vehicle, they’d be able to at least attempt to take possession of your vehicle.

What is the Purpose of a Vendor Lien?

The obvious answer is that a vendor lien is a tool that lenders of any kind can use to take back property if payment for that property isn’t made by the borrower. So, in the above case with the auto mechanic, the shop would be able to use the vehicle itself as leverage to dissuade the owner of the vehicle from not paying the bill.

But, a vendor lien goes much deeper than that. It prevents the borrower from either transferring the title or selling that property until they are able to clear the title. In this case, the seller will be the rightful owner of the property in question up until the borrower pays off the property completely.

How a Vendor Lien Works for Real Estate

Not every homeowner is able to qualify for a mortgage. When this happens, they may not have a lot of options for obtaining the necessary financing to pay for the home.

In some cases, the seller of the home would be willing to be the lender. Instead of the buyer using money they got from a mortgage company to pay for the home, they would make monthly payments directly to the seller to satisfy the sales price.

A contract would be drawn up that lays out the terms of the sale — just like a mortgage. In that contract would typically be a vendor lien, which would protect the seller’s interest.

It could technically prevent the buyer from selling the home again to another person before they fully pay off the loan. There might be language in the vendor lien, though, they would say this would be OK as long as the holding of the vendor lien approved of the sale.

The vendor lien would serve as the official document in this out-of-the-ordinary home sale transaction, and it would allow the seller to begin the foreclosure process if the buyer doesn’t make the scheduled payments or falls behind. 

How a Vendor Lien Gets Discharged

After all payments are made in the contract, the borrower won’t owe any more money, and the vendor lien will be completely satisfied. Some contracts may include language that says the vendor lien will be automatically discharged when this happens.

Even so, it’s in the best interest of the borrower to get a signed, written document that serves as evidence that the borrower has satisfied the vendor lien and it’s paid off. That way, the holder of the vendor lien can’t make a claim to the property in the future.

This is very important to borrowers for another major reason — vendor liens will typically be reported on a borrower’s credit report. As such, the mere presence of a vendor lien could affect a borrower’s credit score for as long as it’s still on their record.

When the borrower is able to prove that they have satisfied the vendor lien and it gets discharged, it should be removed from their credit report as well, which will typically result in their credit score increasing.

Vendor liens can be rather complicated depending on the type of property you’re trying to secure. Since a vendor lien can be attached to a written contract agreed to by two private parties — and not a mortgage company, for instance — it’s important that if you’re entering into a contract that has one, you understand everything it means.

The Difference Between an Execution Sale and a Foreclosure Sale

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Properties can be repossessed by banks or other creditors under certain clearly-defined circumstances, which vary from state to state. While the processes of repossession and re-sale differ from one type to the next, the general premise for these repossessions being initiated is unpaid debt.

Two of the most common forms of re-sale for repossessed properties are execution sales and foreclosure sales. While the two operate fairly similarly, there are many differences — including how the process starts, how it proceeds and how it ends.

Below, we’ll define what an execution sale and a foreclosure sale is, as well as point out the major differences between them.

What is an Execution Sale?

An execution sale is also commonly referred to as a sheriff’s sale. These sales auction off properties that have been repossessed due to unpaid debt or other obligations. 

An execution sale can only be conducted after a court has issued what’s known as a writ of execution. That’s why execution sales are often referred to as being court ordered.

During an execution sale, a public auction will occur at a public place, such as the courthouse steps of the municipality in which the property is located. It’s also managed by law enforcement officials in the local municipality, which is why they’re called sheriff’s sales.

Before an execution sale is held, it will be advertised at various online sites and in some local newspapers, with a specific date, time and location for the auction. Any member of the public can attend the auction and bid on the property.

The auction itself proceeds like any other, with the highest bidder becoming the new owner of the property once payment has been satisfied. Generally speaking, the highest bidder will have to pay in cash or have funding already secured before paying for such a property.

These types of sales are rare in Michigan as most creditors and courts follow the foreclosure process, which allows the borrower a redemption interest in the home after foreclosure.

What is a Foreclosure Sale?

As mentioned earlier, some foreclosures will end in execution sales, though not all will. Sometimes, the mortgage company will follow specific procedures that are laid out in their state to obtain possession of a home and then sell it. This is called a non-judicial foreclosure, since it happens outside of court.

Each state has a slightly different rules and regulations for how foreclosure proceedings must occur, and the mortgage company must follow those procedures exactly to finalize the foreclosure.

Every mortgage is referred to as a secured loan, since it uses the actual property as collateral. When the borrower isn’t able to repay the mortgage per the terms of the loan, then the lender has the right to start foreclosure proceedings to repossess the property.

When Can a Lender Foreclose on a Property?

Generally speaking, a lender tries to avoid the foreclosure proceedings. That’s because foreclosures can be expensive, and forces lenders to become property owners, which is outside of their core competency.

When a borrower misses a payment, they’ll typically receive a missed payment notice. Once they miss a second payment, they might be sent a demand letter that advises the borrower of the dangers of continuing to miss payments. The letter may also offer payment arrangements.

Notices of default may be sent in many cases once the borrower has missed payments for 90 days, and this is when the foreclosure process will typically start in earnest. There are different notification timelines and steps the lender must take to satisfy the foreclosure criteria.

There are 22 states where the normal process includes judicial foreclosure, which requires the lender to seek relief from the court system. The other 28 states can use non-judicial foreclosure. This provides a quicker process for the lender to foreclose on the home and re-sell it at auction.

Similarities 

Both execution sales and foreclosure sales are processes that are taken to allow creditors to reclaim unpaid debt quickly. They are completed when a borrower doesn’t pay an obligation that they are legally required to repay — such as mortgage or tax bill.

Both sales will transfer the ownership of the property, and they are typically done at an auction format. Some foreclosure sales actually may end up as execution sales, which are referred to as judicial foreclosures.

Differences

Non-judicial foreclosures can be carried out in 28 states without the need for court intervention. Execution sales, by contrast, can only be conducted once a court has made a judgment that forces the sale.

Because execution sales are ordered by the court, there isn’t much a borrower can do to stop them. In essence, one of the only options a borrower might have to stop an execution sale is to appeal the decision or satisfy the court’s demands.

Non-judicial foreclosure proceedings provide the lender with a shorter timeframe to take possession of the property and sell it at auction. At the same time, the lender will often try to work with the borrower to allow them to avoid foreclosure along the way.

There’s a reinstatement period during the foreclosure process, during which the borrower may catch up with what they owe, find outside financing to satisfy the outstanding amount, obtain a short refinance and have a portion of the loan forgiven, or even obtain special forbearance in the case of a temporary hardship.

In non-judicial foreclosures, the borrower has more options to keep ownership of the property going forward, while they have little control during an execution sale. 

Michigan State Cannabis License Approval vs. City/Municipality Cannabis License Approval

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Cannabis has become big business in Michigan in a very short period of time. While the Michigan Regulation and Taxation of Marijuana Act was passed in 2018, the first sale of recreational marijuana didn’t take place in the state until December of 2019. 

In the first full year of recreational marijuana sale in 2020, overall sales totaled more than $950 million. One year later, that number exceeded $1 billion for 2021, the Marijuana Regulatory Agency reported.

It’s clear that cannabis has become big business in Michigan, and it’s expected to grow at considerable rates in coming years, too. This fact is attracting a lot of people to the industry who are looking to cash in on what is a completely new industry.

If you want to get in on the cannabis sales game, there are rules and regulations you must follow. Below, we’ll discuss cannabis license approval at both the state and municipality level.

Types of Licenses Available

Michigan state law provides for a few different licenses related to cannabis. So, the first step in getting license approval is to figure out which license you want to apply for. 

There are various six different categories of licenses to which you can apply. These include …

  • Grower (Class A): The licensing fee of $1,2004,000 will allow businesses to grow as much as 5100 plants. They can be sold to processors or retail cannabis stores.
  • Grower (Class B): The licensing fee of $6,000 will allow businesses to grow as much as 1,000 plants.
  • Grower (Class C): The licensing fee of $24,000 will allow businesses to grow as much as 1,500 plants.
  • Microbusiness: The licensing fee of $8,000 allows owners to grow as much as 150 plants, then process what they grow and finally sell it directly to legal adults. It’s a way to vertically integrate a cannabis business in Michigan.
  • Consumption establishment: A licensing fee of $1,000 allows people to operate social clubs that welcome people to use marijuana while inside. In most cases, the clubs are restricted to people who are at least 21 years old, and the establishment typically can’t sell alcohol or food.
  • Event organizer: A licensing fee of $1,000 allows organizers to hold temporary events revolved around marijuana. Some of these events have entrants who compete for various prizes, while others are conferences.
  • Temporary event: For a fee, people who hold an event organizer license may hold an event that allows for the consumption and sale of cannabis products. Every day the event is held, the licensee must pay a $500 fee. If cannabis will be sold, then the fee goes up by another $500 per day, plus $500 for every person who’s authorized to sell there.
  • Testing facility: The licensing fee of $25,000 allows for people to open cannabis testing facilities specifically for recreational usage.
  • Marijuana Processor: The licensing fee of $24,000 will allow businesses to process marijuana into its various allowed bi-products such as an oil or edible.
  • Marijuana Retailer: The licensing fee of $15,000 will allow businesses to sell all allowed marijuana products.
  • Marijuana Secure Transporter: The licensing fee of $15,000 will allow the license holder to transport marijuana to other state approved businesses.

One thing to note is that Michigan changed its state law in regard to marijuana licensing. In early 2022, the state dropped a requirement that a licensee must first hold a medical marijuana license to apply for a recreational usage license. Now, prospective license holders can apply directly to receive a recreational license.

How to Get a Michigan State Cannabis License?

Applying for and receiving a Michigan state cannabis license is essentially a two-step process.

Step one is the pre-qualification process. A $6,000 fee must be paid to the State of Michigan Marijuana Regulatory Agency to start the process.

Pre-qualification involves submitting an application to Michigan’s Department of Licensing and Regulatory Affairs. Once that is done, officials from LARA will conduct a background check on all applicants for the license, including both the primary applicant and any supplemental applicant.

If you are approved in pre-qualification, you’ll be allowed to search for a facility where your business will operate. The facility must be fully secured before the second step can be started, which includes applying for the full state cannabis license.

During this step, MRA officials conduct an inspection of your facility. They’ll also examine local laws and regulations, your company’s financial statements and prospectus and information about your employees.

If all goes well, you’ll be approved for a Michigan state cannabis license. To formally get your license, you’ll have to pay the initial licensing fee, which will vary according to the type of cannabis business you’re opening. You also must pay a renewal fee each year to keep the license active.

How to Get a Municipality Cannabis License in Michigan?

Step two in the process of gaining approval for a Michigan state cannabis license is finding and securing a facility for your business. You won’t be able to just choose whatever facility is up for sale or rent, though.

Michigan’s cannabis law allows local municipalities to set their own rules in regard to businesses in the marijuana industry. Some municipalities only allow certain types of cannabis businesses — either medical or recreational, for instance. Others allow all types of cannabis businesses, while some don’t allow any at all.

Generally speaking, if a municipality has laws that allow recreational marijuana facilities to operate, they probably also allow medical marijuana facilities to operate there, too.

The same is not necessarily true the other way around. For example, Acme Township in Grand Traverse County allows for medical marijuana facilities but not recreational marijuana facilities. 

State Laws in Regard to Municipal Licenses

Michigan state law set the parameters for what municipalities were allowed to do in regard to providing for the operation of cannabis businesses within their borders.

First and foremost, the state put it in each municipality’s hands to decide whether they wanted to “opt in” to allowing processors, secure transporters, provisioning centers, growers and/or safety compliance centers to be located there. If a municipality decides to opt in, they must pass an ordinance that not only permits but regulates the facilities.

Municipalities do have some freedom in terms of what they can include in the ordinance, such as:

  • Type: They can authorize multiple types of cannabis facilities or only one.
  • Number: They can limit how many facilities can operate there, and how many of each specific type of facility.
  • Fee: They can charge an additional $5,000 fee to every person receiving a cannabis license.
  • Supplemental ordinances: They can enact additional ordinances that are related to the cannabis businesses, such as zoning regulations that prohibit facilities to be located within a certain distance from a school, for instance.

What municipalities don’t have the freedom to do is set regulations or rules regarding either the pricing or purity of the cannabis being processed/sold in their municipality. They also cannot implement laws and regulations that conflict or interfere with state-level regulations in regard to the licensing of cannabis facilities.

Each municipality may have their own unique application process for receiving a license. So, make sure you contact the local government of the municipality. in which you wish to operate a cannabis facility to get more information.

Michigan Rules and Regulations for Cannabis

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While many states in recent years have moved to legalize marijuana for medical or recreation purposes — or both — Michigan was actually the first one in the Midwest to legalize it on a recreational basis.

In 2018, the Michigan Regulation and Taxation of Marijuana Act was signed into law, which made it legal for most adults 21 years of age and older to use marijuana on a recreational basis. The state had previously legalized marijuana for medical purposes.

There are many rules and regulations for cannabis in Michigan that you need to be aware of if you want to possess, use, cultivate and even sell cannabis legally. Below, we’ll dive into the many different aspects of the state’s cannabis rules.

State-Specific Laws

The first thing to understand about Michigan rules and regulations for cannabis is that they are state-specific. In other words, they only apply when you are within Michigan’s state borders. 

What this means is that even though it’s legal to possess a certain amount of marijuana in Michigan, it’s not legal to do so in all states. So, if you plan on crossing state lines, you need to make sure that you are following all the local rules and regulations where you are traveling. 

Also note that cannabis is considered illegal in all forms by federal law. This comes into play in a number of situations, including domestic travel via airplane as well as obtaining a loan through a financial institution backed by the federal government.

How Much Cannabis Can You Possess in Michigan?

Just because recreational cannabis is legal in Michigan doesn’t mean there are no limits at all. According to state law, adults over the age of 21 are allowed to possess up to 2.5 ounces of marijuana on their person. That limit increases to 10 ounces when they are in their own home.

If you are caught with between 2.5 ounces and 5 ounces of marijuana outside of your home, you could face a civil infraction with a maximum fine of $500 for your first offense. If you are found to be in possession of more than 5 ounces outside your home, you could face a misdemeanor charge with a maximum fine of $500 for your first offense.

What this law means is that you are technically not allowed to purchase more than 2.5 ounces of marijuana at one time, even if you intend to only use it in your home. That’s because you’ll be outside of your home when you transport it from the dispensary.

Where Can’t You Possess Cannabis?

In addition to there being limits in place for how much cannabis you can possess in certain locations, there are also restrictions for where you can’t ever possess marijuana in Michigan.

State law says that no one can possess marijuana within 1,000 feet of a park — or in the park itself. If you are caught doing so, the judge will be able to use their own discretion to decide whether to charge you with a misdemeanor or a felony. The punishment carries with it a maximum sentence of two years in jail as well as a fine of up to $2,000.

Can You Distribute Marijuana in Michigan?

You are allowed to give marijuana to another legal adult in Michigan as long as the exchange meets certain criteria. First, both you and the person you are giving it to must be of legal age.

Second, you must not receive any remuneration, or payment, in exchange for it. In other words, if you are giving a friend who is of legal age some of the marijuana that you have in your home, then it is legal.

Third, the amount that you give to another person must be less than 2.5 ounces.

Finally, you aren’t allowed to transfer the cannabis in public, and you aren’t allowed to promote or advertise that you are giving cannabis away.

If you distribute between 2.5 and 5 ounces of marijuana to another person without remuneration, you’ll be penalized with a civil infraction that carries a maximum fine of $500.

Can you Sell Cannabis in Michigan?

Michigan rules and regulations for cannabis set very clear definitions as to who can and can’t sell marijuana in the state.

All those who wish to do business in marijuana in Michigan — whether for recreational or medical purposes — must receive the proper certifications and licenses to do so. State agencies conduct rigorous background checks and screening of applicants to ensure the operation is legitimate and run legally.  Both state and local licenses are required to sell in a Michigan municipality.

Obtaining a license to sell cannabis in Michigan is not only a long process, but an expensive one, too. Failure to obtain these proper licenses can result in significant criminal penalties.

All illegal sales of marijuana in Michigan are considered to be a felony. The sale of less than 5 kg of cannabis could result in a jail term of up to four years and a fine of up to $20,000. The sale of between 5 kg and 45 kg could result in a sentence of up to seven years in jail and a $500,000 fine. The sale of more than 45 kg could result in a prison sentence of up to 15 years and a maximum fine of $10 million.

Can You Grow Cannabis in Michigan?

Michigan’s recreational marijuana law does allow people in Michigan to grow their own marijuana plants, under certain circumstances. 

An adult is allowed to grow as many as 12 marijuana plants at their own home, as long as the plants are going to be for personal usage.

The plants must not be grown in a place where they can be seen from a public place or outside of a secure area. This means that the plants can’t be grown inside next to a window that isn’t covered by blinds or curtains, nor can it be grown outside if someone else could access the plants without opening a gate or lock, for instance.

If you are found in violation of the rules and regulations as they relate to the location of the marijuana plants, you could face being charged with a civil offense, which could result in a fine of up to $100 and the forfeiture of your marijuana plants.

If you are found to be growing more than 12 but less than 25 plants, you could face a civil infraction that carries with it a $500 maximum fine.

Those found to have 25 or more marijuana plants can face a misdemeanor charge. The term of incarceration can also be imposed in these cases if “the violation was habitual, willful and for a commercial purpose, or the violation involved violence,” according to Michigan’s rules and regulations for cannabis.

Cannabis-related Real Estate Transactions, buying/selling/leasing

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Cannabis-related businesses can be extremely lucrative, but they also bring with them a lot of challenges that businesses in other industries don’t face. Even though both recreational and medical cannabis is legal in Michigan and many other states, for example, setting up shop is not as easy as it is for other industries.

One of the biggest challenges for cannabis-related businesses is landing the necessary real estate to conduct their business. Some building owners simply don’t want to lease or sell to people who run cannabis businesses. Others require the business owners to take out certain insurance policies or pay additional fees and/or higher rents to operate there.

In addition, business owners in the field might have trouble securing a loan to purchase a property. That’s because marijuana is still considered illegal according to federal law, so many large financial institutions won’t lend to those who deal in marijuana — even if it’s legal where they operate. 

For a cannabis-related business to even receive a license to operate in Michigan, they have to get the proper approvals from both the state and the municipality where they want to operate, which can only be done once they have a property secured and there are different ways one may be able to secure a property.

With all this being said, here are some of the main real estate transaction options for cannabis-related businesses, as well as the pros and cons of each.

Property Purchase

A property purchase is the most common form of real estate transaction in the cannabis industry. This includes the company purchasing the facility that they will use to operate their business from a seller. 

There are many advantages to this type of real estate transaction. For one, the cannabis business will retain full rights to the property immediately. They won’t have to check with a landlord to see if it’s OK to operate their type of business, or meet any specific requirements the landlord has.

Second, the property can serve as a major asset for the business, especially after it’s paid off. In this same vein, the payments the business makes toward the purchase price of the property is a direct investment in a real asset, rather than just being dumped into rent.

Finally, purchasing the property provides the owner with potential tax benefits, such as being able to deduct any interest paid or depreciation. 

On the flip side, purchasing a property to operate a marijuana business can be quite expensive. Depending on the type of cannabis business you run, you might need a large warehouse, state of the art equipment and many personnel, which might be more than some people can afford.

Purchasing a property also adds a significant line item to the business’ long-term debt service. As mentioned before, it might also be difficult for cannabis business owners to obtain decent financing for the property, causing them to either seek out alternative funding sources that could come with high interest rates or have enough cash on hand to purchase the property outright.

Lastly, this type of real estate transaction might be limiting in the long run. If the company grows at a rapid pace and needs more space, for example, the business can’t simply finish out the lease and move to a new facility. They would be stuck with a building that they own and might have to sell or expand if able.

Land Agreement

Another option is a land contract agreement. A land contract is an agreement between a seller and a buyer in which the seller will essentially act as the mortgage company. The seller will hold onto the title of the property until the buyer completely pays it off. 

One of the biggest advantages to this type of real estate contract for cannabis-related businesses is that it opens up new possibilities for funding. They don’t have to worry about being rejected by major banks for loans or seek out expensive lending alternatives. 

A land contract  agreement will provide the business owner with the benefits of owning a property, as the payments they make each month will go toward paying off the land contract balance while building equity in an asset. 

The downside to a land agreement is that the seller will hold onto the title for the entire time until the buyer is able to pay off the total balance so the title can be transferred to the buyer.

Another big negative is that these contracts are usually much more stringent than typical mortgages. For example, the buyer may have no leeway at all in repayment terms. If they miss even a single payment, then the seller might have the ability to forfeit the land contract and recover the property from them. This doesn’t provide a lot of protection to the cannabis business owner, should they not have a solid relationship with the seller.

Lease

If property ownership is not in the cards — or is not something you desire — then you could of course opt for leasing your commercial space. This would work just like the lease of any other property. You would come to an agreement with a landlord on the terms of the lease — the length, the restrictions, who is responsible for what, etc. — and then pay an agreed-upon price to rent the space.

There are many advantages to a lease for cannabis-related businesses. First, it doesn’t tie up a lot of cash in an asset that is outside the core business. Instead of being land owners, the business can focus instead on just running the business.

Second, leases provide more flexibility. If the business needs to expand, move or add space elsewhere, the lease likely won’t stand in the way of it doing so. 

Third, most leases will provide coverage for ongoing maintenance. Sometimes, this will cover not only the exterior of the property and building but the interior as well. 

Lastly, leases allow cannabis business owners to not have to worry about securing financing. They can simply use cash-on-hand to pay their monthly rent, instead of trying to secure financing for a large purchase.

The biggest downside to a lease is the business owner doesn’t have any control over the property. They are at the mercy of the property owner in many respects. Rental increases could become prohibitive, and the potential for this to happen provides cost uncertainty.

The property owner may decide to sell at one point, and if the new owner doesn’t want a cannabis-related business to operate there, they may not renew the lease and eventually kick you out.

Finally, cannabis-related businesses might have a tough time finding available property owners who would be willing to lease them a building. As mentioned before, even though both medical and recreational marijuana are legal in Michigan, not everyone wants to be directly, or even indirectly, involved in the industry.

Bankruptcy Options for Cannabis Companies

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An increasing number of states are moving forward with legalizing cannabis in some fashion. In Michigan, and in many other states, it is legal for most adults over the age of 21 to partake in medical and recreational marijuana.

As such, an entire cannabis industry in Michigan has popped up over the last few years to meet the immense demand of consumers. The state has created an in-depth licensing system to ensure that all direct and ancillary businesses in the industry are up to the proper standards and operating legally.

While cannabis is a growing industry that has just begun to realize its full potential, not all cannabis-related businesses are going to be successful. Unfortunately, due to clashing laws, cannabis companies don’t enjoy the same federal protections as other industries in times of need.

One of the main areas where cannabis businesses don’t enjoy protections from the law are when they are struggling financially. Cannabis companies don’t enjoy the same bankruptcy protections as businesses in other industries.

So, what are the options for cannabis companies if they are facing financial hardship? We’ll detail those options — as well as how this could change in the future.

Why Cannabis Companies Can’t File for Bankruptcy

 

If cannabis companies are legally allowed to operate in Michigan and some other states, why are they not allowed to file for bankruptcy? The reason is quite simple, really: Marijuana is illegal in all forms at the federal level, and bankruptcy protection is provided by the federal government.

When a company files for bankruptcy, they will do so under the rules set forth by the United States Bankruptcy Code in a U.S. bankruptcy court. These protections are only provided to companies that are operating legally.

Since cannabis is illegal in all forms federally, any company in the cannabis industry is not afforded typical protections under U.S. Bankruptcy Code — since they are technically operating illegally according to federal law. This goes not just for companies directly in the industry, but could also apply to ancillary companies that provide some services to cannabis companies.

This doesn’t mean that these companies are going to be prosecuted by the federal government, and it is highly unlikely that the federal government is going to shut down a cannabis company’s operations as long as they are abiding by their state’s rules and aren’t doing any interstate commerce. But, it also means the federal government isn’t going to go out of its way to provide these companies with federal protections such as bankruptcy.

Bankruptcy Alternatives to Cannabis Companies

 

Typical business bankruptcy proceedings would include a reorganization or official action to sell off the company’s assets to meet the business’ debt obligations. This would be done under a direct order from the bankruptcy court, which would lead the process so there is no concern about which creditors are prioritized over others, and which assets must be sold.

Some businesses are even able to use bankruptcy protection to restructure their debt so that they can emerge from bankruptcy as a solvent company that can continue to operate.

Without this official and straightforward process available to them, though, cannabis companies must seek out alternatives if they are in a tough financial position.

There are two main options cannabis companies will have in these situations. 

ABC

The first option is called an ABC, or assignment for the benefit of creditors. This is available to cannabis companies in many instances, because ABC is a process that operates under state law. As such, each state will have its own rules and regulations for how this can be used.

The process is very similar to how Chapter 7 bankruptcy works. State law will dictate how the cannabis company’s assets will be liquidated. All of these assets will be assigned to a person known as an assignee. This person will then oversee the entire liquidation of all the assets as well as how the proceeds from this liquidation are distributed to the company’s various creditors. 

The positive to ABC is that it can actually be completed much quicker and for far less money than a typical bankruptcy proceeding.

Workout Agreement

If the ABC effort doesn’t work, or if there are hiccups in the process, then another option would be for the cannabis company to directly negotiate with their creditors. This is referred to as a “workout agreement,” since the two sides will “work out” the conditions or terms of settling the outstanding debt.

While some creditors may be willing to work with the cannabis company to work out repayment arrangements, others may not. One of the main reasons for this is that the cannabis company doesn’t have a lot of leverage in this case, since they can’t use the threat of bankruptcy.

That being said, a creditor may be willing to negotiate arrangements with a failing cannabis company because the alternative might be to file a civil suit. Those lawsuits can be time-consuming and expensive, and might not lead to much in the end.

Could Bankruptcy Law Change?

With more and more cannabis businesses popping up throughout the country, it’s possible that bankruptcy laws could ultimately change so that cannabis companies could receive some protection. 

In fact, a Michigan-based cannabis company tried to challenge its Chapter 7 bankruptcy filing, which was dismissed in part because federal law considered the business to be illegal.

The company appealed the decision to federal district court, but they were not successful in their arguments. In making its ruling in the case, the federal court said that bankruptcy isn’t available for any company that has assets “that are used for, or generated by, a business prohibited under the CSA [Controlled Substances Act].” 

Since marijuana is prohibited under the CSA, then, any business dealing in marijuana is ruled to be ineligible for bankruptcy protections.

There is a possibility that this could change in the future, though. Some members of Congress have considered proposing legislation that would at least decriminalize recreational marijuana, while others have suggested making recreational use legal — as many states have.

Until this happens, though, it’s very likely that cannabis companies that are in financial trouble will have to seek alternatives to bankruptcy.

 

Can You Smoke Weed in Public in Michigan?

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Michigan is one of the states in America where it is legal to use marijuana both for medical and recreational purposes. It was actually the first state in the Midwest to legalize marijuana on a recreational basis back in 2018, which allowed adults who are over the age of 21 to use weed for non-medical purposes.

That being said, there are some limitations as to how much weed one can possess legally in the state, as well as limitations on where weed can be smoked. It’s very important that you follow these laws, as breaking them can get you into legal trouble even though Michigan legalized recreational marijuana usage.

Below are some more details about the restrictions surrounding marijuana usage in Michigan, and where you can and can’t smoke it in public.

Who Can Possess Marijuana in Michigan?

 

Michigan law restricts the purchase and possession of recreational marijuana to adults over the age of 21. There are some restrictions to this that bar certain individuals from purchasing, possessing or using marijuana.

As long as you meet the requirements, though, you will be allowed to possess weed in Michigan.

How Much Weed Can You Possess?

 

According to state laws, individuals are allowed to possess as much as 10 ounces of marijuana while they are at their home. This includes both inside their home as well as on the property surrounding it. 

If you are outside of your home, Michigan law states you can possess up to 2.5 ounces of weed. This allows you to travel with weed to another location in the state, or to purchase it from a dispensary and then bring it to your home, for example.

There are some places where it is completely illegal to possess any amount of weed. This includes on the property of any prison, jail or K-12 school.

Can You Grow Your Own Weed?

Yes. If you are at least 21 years of age, you’re allowed to cultivate as many as 12 cannabis plants at your home, assuming you meet all the requirements of doing so.

These plants must be grown only for personal use, and they can’t be placed anywhere that can be seen by the public. In other words, they shouldn’t be placed in a window or near a window where the plants could be viewed if blinds or curtains were drawn.

One important aspect of this is that the weed plants you grow have to be for your own use. You can’t produce or sell the cannabis products you make from your own weed plants, unless you have a special license to do so.

Only microbusinesses, retailers or provisioning centers with the proper licenses are allowed to sell weed products in Michigan.

What Can You Buy and Where Can You Buy It?

Along these lines, it’s important to understand where you can purchase marijuana legally in Michigan as well as what types of products you’re allowed to purchase. In Michigan, you can only purchase recreational marijuana at licensed provisioning centers and retail outlets also referred to as dispensaries.

You should easily be able to find a list of fully licensed and regulated dispensaries by searching online. 

In terms of what you can buy, you will have quite the choice of products at most dispensaries. This includes weed that you can smoke, as well as other infused products such as edibles that come in the form of chocolate, gummies, concentrates and mints.

There are also plenty of different vape products that you can purchase. While the state temporarily halted the sale of vape products containing marijuana back in 2019, that ban has been lifted.

At most of these dispensaries, you can also purchase a number of different accessories to enhance the consumption method while you’re using.

Just keep in mind that you are only allowed to legally possess 2.5 ounces of weed outside of your home. This includes when you are transporting any products you legally purchased from a dispensary to your home. So, you may want to limit your purchase to this amount just to be safe.

Can You Smoke Weed in Public in Michigan?

Just because recreational weed is legal in Michigan doesn’t mean that you can use it anywhere. In many regards, this is very similar to the consumption of alcohol. Most adults over the age of 21 can legally purchase alcohol in Michigan, but they can’t drink a beer anywhere they want in public. The same goes for marijuana whether medical or recreational

Michigan state law says that you’re allowed to use weed in your home. You can also use it in someone else’s home as long as the property owner, landlord or occupant gives you permission to do so. 

This means that if you are renting your home, your landlord does have the right to ban you from smoking marijuana in it, even if you are of legal age to do so. A landlord can’t, however, ban you from using weed in other forms, such as edibles or concentrates. A landlord can ban smoking in all forms even for tobacco, for instance, but can’t ban your use or non-smokable weed or alcohol. 

All outdoors consumption of marijuana, in any form, is illegal. While you likely won’t get in trouble for smoking weed in your own backyard, you certainly can get in trouble for doing so in a public place such as on the street or in a park, or even in your vehicle. 

The only exception to this law is if you are consuming weed at a location that has a social consumption license. These Designated Consumption Establishments allow people to use weed while they are on their premises, as a social activity.

 

What Happens if TSA Finds Cannabis in Checked Luggage?

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     Marijuana is more socially acceptable throughout the country. Some states such as Michigan have even legalized the practice of growing, selling and using cannabis on a medical and/or recreational basis.

For those who are interested in partaking in marijuana in one way or another, this is really good news. At the same time, differing laws can create a lot of confusion, especially when someone is traveling across state lines.

One of the most common questions that’s asked in terms of traveling with cannabis is whether you are allowed to carry it in your checked luggage. Below, we’ll address what happens if TSA finds cannabis in your checked luggage.

Does TSA Check for Cannabis in Luggage?

According to the TSA, security officers won’t be actively searching for marijuana or any other illegal drugs. Instead, they are focused on finding anything in luggage that could be a threat to passengers and aviation as a whole.

It’s obviously possible, though, that TSA security officers may end up finding cannabis products in your checked luggage. So, what happens in this instance?

The TSA says that if security agents find cannabis during a security check, they are required to report it to local law enforcement officials — depending on what state the airport is located in.

If the airport is located in a state where marijuana is legal, for example, then the TSA security agent may just confiscate the cannabis in your luggage, unless you are trying to transport a very large amount of it.

On the other hand, if the airport is located in a state where marijuana is still completely illegal, then you will likely be turned over to law enforcement officers for a possible fine and/or other criminal action.

How Can TSA Officers Find Cannabis in Luggage?

A question you might have is how would a TSA security officer find cannabis in your luggage if they aren’t actively searching for it? There are a few ways that they might come across it, actually. Here are some of the main ways it could happen

Random Searches

TSA security officers will perform random searches of about 10% of all checked bags, by policy. When they do this, they will open a passenger’s luggage and conduct a physical inspection of the contents inside. If you are one of the unlucky ones to have your luggage randomly inspected, TSA officers will find your cannabis if you have any inside.

Airport Scanners

While cannabis does appear on airport scanners, it doesn’t appear as a clear picture of what it is. When luggage goes through an airport scanner, the contents inside either appear blue/black, green or orange.

Blue/black represents any hard plastic. Green represents any non-organic material. And orange represents organic material. 

Since cannabis is organic material, it will appear orange in an airport scanner. But, if TSA security officers aren’t specifically looking for cannabis, why would they open a person’s checked luggage if they see an orange item?

The answer is because explosivesbecause that explosives would also appear orange through an airport scanner, since they are composed partially of some organic materials. 

In other words, if a TSA security agent sees orange pop up in your luggage, they may be opening it to search for explosives, only to find that what’s inside is cannabis.

What About Medical Marijuana?

Another common question is whether it’s legal to carry cannabis in your checked luggage if you have a medical marijuana card. The answer, unfortunately, is that this is irrelevant from the TSA’s perspective.

The reason is because cannabis in all forms — whether for medical or recreational use — is still considered completely illegal. And since the TSA is a federal agency, it operates by federal law.

Therefore, showing your medical marijuana card to a TSA security agent who finds your medical marijuana won’t change what they do after they find cannabis in your checked luggage. They are still required by federal law to report you to local law enforcement officials.

As mentioned above, though, the one exception to this is if the airport is located in a state where medical marijuana is legal. If it is, then your cannabis may just be confiscated instead of being turned over to law enforcement.

What if I’m Traveling to and from States Where It’s Legal?

The same reasoning for medical marijuana applies in the case of flying from one state where cannabis is legal to another state where it’s also legal. Even if the two states have the exact same laws, flying with cannabis in your checked luggage is not legal from the TSA’s perspective — because all marijuana is considered illegal from a federal standpoint.

Are There Any Exceptions at All?

With all of the above in mind, it is important to note that you can fly with certain cannabis products in your checked luggage. What determines whether it’s legal or not is what the cannabis product is made of.

TSA states that some cannabis-infused products are completely legal to fly with. In order for the cannabis product to meet the legal criteria, according to the TSA, it must not contain more than 0.3% THC on a dry weight basis. Or, it must be approved for use by the FDA.

This means that some cannabis-infused products are completely legal to put in your checked luggage. Most of these products are Cannabidiol that are derived from hemp and not marijuana — though there are some from the latter source.

If you want to fly with this type of product, it is very important that you store the product in its original packaging, and that it clearly states the level of THC that it contains. These are similar instructions you would want to follow if you were flying with prescription medications — which should be kept in their original packaging that shows you are the one who they were prescribed to. 

You don’t want TSA security officers to have to make a determination as to whether your cannabis-infused product meets the criteria for exception. In almost every case, they will err on the side of caution and either confiscate your cannabis and/or turn you over to local law enforcement authorities.



TSA Guidelines for Cannabis 2022

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Many states throughout the country have legalized cannabis in some form. Some states have legalized it only for approved medical use. Others have legalized it for adult recreational usage as well. Others have done neither, and still consider its usage to be illegal in all forms.

These different rules in regard to cannabis usage can make traveling across state lines quite complicated and confusing if you want to travel with cannabis on you.

If you plan to fly with cannabis, it’s important that you understand the rules laid out by the Transportation Security Administration. The TSA sets the rules for what is and what is not allowed on all planes in the United States, and these rules must be followed by everyone who wishes to fly — regardless of what state they are coming from or going to.

Below is a detailed look at TSA guidelines for cannabis in 2022.

The Challenge with Conflicting Laws

The biggest challenge in understanding the rules regarding cannabis when you’re traveling is that there are three different set of laws at play:

  • The laws of the state you’re flying from
  • The laws of the state you’re flying to
  • Federal laws

As mentioned before, different states have different rules for how they handle cannabis, in both medical and recreational form. What’s legal in one state may not be legal in another.

In Michigan, for example, both medical marijuana and adult recreational marijuana are legalis legal. By contrast, all forms of marijuana are illegal in Kansas. This means that if you are found to possess marijuana in Kansas, you could be held accountable to the state’s laws, even if you are a resident of Michigan and purchased it there legally.

In addition, marijuana is considered completely illegal from a federal standpoint. Federal law enforcement agencies are highly unlikely to intervene on individual state laws regarding marijuana, but they may when someone carries marijuana across state lines — in certain situations.

Can You Fly in the U.S. with Marijuana?

The quick answer to this question is a simple “no.” The more in-depth answer to this question is a more complicated “it depends.”

Let’s dive further into these two possible answers.

The Simple No

The simple “no” answer is because, as mentioned previously, marijuana in all forms is considered illegal by federal law. And since the TSA is a federal agency, federal law supersedes state law within an airport and on airplanes.

As such, the TSA does not officially allow marijuana to be taken into airports or on airplanes. If they find it, they will, in some cases, refer you to law enforcement agencies. Those agencies may or may not pursue official criminal charges, but you can bet that whatever marijuana you had with you will be confiscated. 

It Depends

The more complicated “it depends” answer is based around two factors. The first is the official policies of the TSA. As stated in their official guidelines regarding marijuana:

“TSA’s screening procedures are focused on security and are designed to detect potential threats to aviation and passengers. Accordingly, TSA security officers do not search for marijuana or other illegal drugs …”

If you combine that statement with the description above, it means that the TSA won’t specifically be searching to see if people are carrying marijuana with them into airports … but if they happen to find it during a security search, they may report it to law enforcement agencies.

The second factor is what the specific cannabis product in question is. While marijuana and some products that are infused with cannabis are considered illegal by federal law, there are some exceptions to that.

According to the TSA, “products that contain no more than 0.3 percent THC on a dry weight basis or that are approved by FDA” are allowed to be taken into airports and on airplanes. This provides some wiggle room for certain products to be taken past TSA legally.

What Products Fit into This Description?

While most medical marijuana — and certainly all recreational usage marijuana — wouldn’t fit into the TSA’s description of legal products, what would are most CBD products. 

CBD is mainly derived from either hemp or marijuana. Almost all that are derived from hemp contain less than 0.3% THC. Even some that are derived from marijuana contain less than that amount, making them legal by TSA’s standards.

This means that CBD products in any form — whether it be oil, edibles or other products — would be allowed to be taken into an airport and on a plane as long as it contained less than 0.3% THC. An important thing to keep in mind, though, is that the onus will be on you to prove that the product you are carrying with you meets that criteria.

As such, it’s always advisable to bring your CBD product in its original packaging. Make sure the packaging clearly states what it is and what the ingredients are — especially the percentage of THC that it contains, if any at all.

In essence, these are the same rules you would want to follow if you had prescription medication that you wanted to fly with. It should be kept in its original packaging that has the original prescription written on it.

This proves what the prescription is, the fact that it’s legal, and the fact that you are the one who’s legally allowed to possess it. If you dump your prescription medication into a plastic bag, for instance, you leave it up to a TSA agent to trust what you say about the medication.

The same goes for CBD products. You don’t want to leave it up to chance whether you’ll be allowed to carry your CBD products with you through an airport and onto a plane.

While having your products confiscated may not be that big of a deal, having to deal with the potential hassle of legal questions likely would be.



How to Get a Michigan Weed/Marijuana Dispensary License

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Medical marijuana has been legal in the state of Michigan since back in 2008. Michigan completely changed the landscape for weed possession and consumption in 2018, though, when it became the 10th state in the U.S. to legalize it for recreational use.

Despite having 14 years of experience dealing with some form of legal marijuana, many of the rules and regulations regarding setting up weed dispensaries are still in the works. It’s an evolving process that is being completely managed by the state’s MRA, or Marijuana Regulatory Agency.

If you’re interested in obtaining a license to operate a weed dispensary in Michigan, read on below to find all important information for how you can do so.

What Do I Need to Start a Dispensary in Michigan?    

The first step in starting a dispensary in Michigan is getting prequalified. To do that, though, you have to decide what type of dispensary you want to open, since there are different laws and licenses that cover each type.

You can either open a provisioning center, which is a medical marijuana dispensary, or a recreational dispensary. Once you’ve made that decision, you can proceed with the prequalification process.

That process begins with an application submitted to the state’s Department of Licensing and Regulatory Affairs. The process includes LARA conducting background checks on not only the primary applicant but also all supplemental applicants. The prequalification process also comes with a fee of $6,000, which must be paid before the MRA will even begin its work. 

If the applicants have been approved through prequalification, they will be allowed to search for a facility for their dispensary. The applicants must fully secure the facility and have it ready for operation before they can proceed to the second step of the application, which is applying for a full license. 

At this point in the process, the MRA will conduct a full inspection of the facility, as well as look into information about the municipality, employees and financial statements. 

If the applicant passes these inspections and meets all the requirements under the state’s Regulation and Taxation of Marijuana Act, they will be approved for a license. They must then pay the initial application fee, which will vary depending on the type of license they applied for. After the fee is paid, they’ll receive the license and be given the ability to operate.

How Long Does It Take to Open a Dispensary in Michigan?

The application process itself is quite long. You should expect to spend around six months getting through the prequalification period. The more complicated that a business is — and the more partners it has — the longer it may take to vet all the owners, for instance.

After prequalification is approved, it could take more than a year before you can even apply for a final license. That’s because you’ll need to find an existing facility or a prospective facility and build it out according to specifications, obtain the required municipal permits and approvals, recruit and hire employees, and go through the inspection process before you even get your final license.

In all, it’s reasonable to expect the entire process to take 12 to 24 months from the time you start the prequalification process to the time you receive your final license to operate.

How Do You Get a Micro Grow License in Michigan?

Michigan provides the opportunity for businesses to apply for what’s called a microbusiness license. This allows a company or person to grow as much as 150 cannabis plants, process them into products such as edibles and concentrates, package those products and then sell them to legal adults 21 years of age or older.

This is an option for people or companies who are interested in the cultivation and processing of marijuana into usable products that can then be sold directly to consumers. It’s can be a rewarding business model, as it’s fully integrated from top-down. 

Michigan law states that those who have a microbusiness license aren’t allowed to transfer or sell their products to other establishments. In other words, these microbusinesses have to sell their products directly to buyers.

To obtain a micro grow license in Michigan, you have to go through a similar prequalification application, followed by a license application for your facility. The application fee is $6,000, while the initial license fee is $8,000, with an annual renewal fee ranging from $6,000 to $10,000 based on the company’s gross retail sales.

Federal Law Regarding Weed Dispensary Licenses

Federal law has long declared that the sale, distribution or use of marijuana is illegal. The Controlled Substances Act, or CSA, codifies all current federal laws regarding drugs, which marijuana is considered. 

Marijuana is listed as a Schedule I controlled substance, lumping it into the category of other drugs with a high potential for being abused, that lack medical value and that can’t be prescribed by a doctor safely. As such, anyone who is caught marketing, distributing or growing marijuana is considered to be in violation of federal law.

Obviously, this federal law conflicts with many state laws, including those in Michigan. Because of this, though, it’s unlikely that any federal law enforcement agency will enforce those federal laws as long as the people in question don’t operate outside of a state where they are legally licensed to operate, as we’ll see in the next section.  However, even if you are approved by the State, you can still be held criminally liable by the federal government if they wish to pursue you.

State Law Regarding Weed Dispensary Licenses

Michigan is one of the state’s whose laws are in direct contrast to federal law. In Michigan, both medical marijuana and recreational marijuana are legal for certain people over the age of 21. In addition, it’s legal for people to apply for an obtain licenses to grow, process and sell marijuana for both medical and recreational purposes.

One often overlooked aspect of the state-federal conflict in laws here is that Michigan’s laws apply in all cases — as long as the activities occur only within the state. Once a marijuana-related activity happens outside of Michigan, it gives reason to the federal government to investigate and prosecute you.threatens to violate federal law.

For instance, a licensed microbusiness is allowed to cultivate, process and sell their products all within the state of Michigan. It is not, however, allowed to take their products across state lines and sell it in Ohio. Even possessing marijuana while one is crossing outside of Michigan’s state lines could be considered a federal crime.

Municipal Law Regarding Weed Dispensary Licenses

Weed dispensaries in Michigan are not allowed to operate within areas that are zoned as exclusively residential. They also aren’t allowed to be located within 1,000 feet of a K-12 school.

State law also gives individual municipalities additional powers to further reduce that distance requirement or impose more location requirements based on what they wish. 

Municipalities are even allowed to completely ban weed dispensaries within their borders, which some municipalities in Michigan have already chosen to do.