Financing a distressed acquisition

Why is financing a distressed cannabis deal different?

Three things change at once. The seller is no longer the owner but a receiver, assignee, or foreclosing lender whose duty is to creditors. The timetable is set by a court or a sale process, not by the buyer’s lender. And the usual source of cannabis deal financing, the seller note, mostly disappears, because a receiver needs cash to pay creditors and cannot wait five years for it.

There is also no bankruptcy court. Chapter 11 and its financing tools are generally closed to plant-touching businesses, so the work is done under state law. The processes themselves are explained on cannabis receivership sales and assignment for the benefit of creditors. This page is about the money.

What are the ways to fund a distressed purchase?

Method	How it works	Who can use it	Main risk
Cash bid	Buyer funds the price from equity raised in advance	Any qualified buyer	Capital is tied up through the regulator’s approval period
Credit bid	Secured lender bids its debt instead of cash	The existing secured lender or whoever owns its loan	Lender ends up owning an operating business it must get licensed to hold
Buying the senior loan	Buyer purchases the lender’s note, usually at a discount, then enforces or credit bids	Buyers with patient capital	Litigation, delay, and no guarantee of winning the asset
Receiver’s certificates	Buyer lends to the receivership with court-approved priority, often paired with a stalking-horse bid	Buyers willing to fund operations before owning	Loan is only as good as the eventual sale proceeds
Creditor financing	Existing lender or landlord finances the buyer to get a better recovery	Buyers the creditor believes in	Creditor’s terms are tight and secured
Assumed debt	Buyer takes over part of the secured loan with the lender’s consent	Negotiated sales before or during receivership	Inherits the covenants and the relationship

Cash, and proof of it

Most successful bids are cash. Bid procedures typically require proof of funds and a deposit, and a receiver comparing two offers will discount the one with a financing condition. That means equity has to be raised before the opportunity appears. If you intend to use investors, set up the vehicle and the securities paperwork in advance; see family-office and private-investor capital.

Credit bids

A credit bid is the secured lender using what it is owed as currency. The best-documented cannabis example is Skymint in Michigan. According to the acquirer’s October 2023 release, a lender that had advanced a total of $81.25 million credit bid its debt for the assets, including 21 operating dispensaries. The court approved the sale on 12 October 2023. The buyer also rejected leases carrying more than $12 million a year of fixed obligations, and closing still depended on state and municipal approvals expected on a rolling basis.

For a third-party buyer, the lesson is practical. If a secured lender is owed more than the business is worth, it can outbid you without spending cash. Find out early what the lender wants. Many lenders do not want to own a cannabis business and will support a cash buyer at a realistic price.

Buying the loan

A buyer can approach the lender and buy the note, often at a discount, stepping into the lender’s position. From there the buyer can negotiate with the borrower, foreclose on pledged equity and equipment under Article 9, or credit bid in a receivership. Public filings show how contested this route can be. One cannabis lender told investors in August 2026 that it had commenced Article 9 foreclosures against a defaulted borrower, was pursuing guarantees amid active litigation, and had engaged advisers to market the collateral. The limits of what a secured creditor can actually seize are covered on seller notes and security interests.

Lending to the receiver

A receiver running a business with no cash may need money to make payroll, pay licence renewal fees, and keep the licence alive until a sale. Courts can authorise the receiver to borrow through receiver’s certificates. A Buchalter client alert from May 2020 describes these as approved in advance by the court, capable of being given priority over other claims, and comparable to debtor-in-possession financing in bankruptcy. A prospective buyer who provides this funding gains information, goodwill with the receiver, and a senior claim. It does not gain the right to buy.

Financing from the creditor

Creditors that want out will sometimes lend to the buyer. Innovative Industrial Properties sold a Michigan property for $9.0 million in April 2025 and made an $8.5 million interest-only secured loan to the buyer, and in 2026 it carried $49.0 million of an $88.5 million sale. If the largest creditor is a lender or landlord, ask whether it will finance part of your bid. It already knows the asset, and a performing new loan may be worth more to it than a low cash price.

What does the capital stack need to cover?

More than the bid. Distressed businesses arrive under-invested and behind on obligations.

Illustrative budget for a dispensary bought from a receiver at $1,200,000:

Use of funds	Amount
Purchase price	$1,200,000
Lease cure payments and new security deposit	$90,000
Licence renewal, change-of-ownership, and local fees	$40,000
Opening inventory	$150,000
Deferred maintenance and security system repairs	$60,000
Working capital for six months	$200,000
Legal, diligence, and court-process costs	$75,000
Total	$1,815,000

In this example the true capital need is about 51% above the headline price. A buyer who raises only the bid amount will run out of money before the business stabilises.

Two items deserve particular care:

• Taxes. Unpaid excise, sales, and income taxes are the most common hidden cost. Federal claims have statutory priority when an insolvent debtor’s assets are distributed under 31 U.S.C. 3713, and states have their own successor-liability rules. The detail is on tax-lien priority in cannabis sales.
• The approval gap. The court may approve the sale months before the regulator approves the new owner. During that gap the deposit, and sometimes the full price, is committed. Negotiate for the price to sit in escrow until approval, as described in staged closings and escrow pending approval.

Will a lender finance the business after you buy it?

Sometimes, once it is stable. A cleaned-up licence with a new owner, current taxes, and a few quarters of reconciled results is a different credit from the one the receiver sold. Institutional lenders describe targets of senior debt under 2.0x EBITDA and loans of $10 million and up (Chicago Atlantic, August 2026), so a turnaround with no trailing EBITDA will not qualify on day one. Owned real estate or new equipment can be financed sooner; see private credit and cannabis lenders and equipment financing. Plan to hold the asset on equity for at least the first year.

How should a buyer prepare?

1. Raise and document the cash before looking at deals. Proof of funds opens the data room.
2. Pre-qualify with the regulator where the state allows it, so your ownership application is not the slow step. Eligibility rules are on ownership eligibility, background checks, and residency.
3. Map the creditors: who is secured, for how much, and whether they intend to credit bid.
4. Read the sale order and bid procedures for what passes free and clear and what does not.
5. Price the asset on what it will earn after repair, not on the discount to a past valuation; see valuing a distressed cannabis business.
6. Follow the process steps on buying a license out of receivership.

This is educational material, not legal, tax, or investment advice. Receivership law, sale procedures, and regulator rules differ by state and by case, and no outcome or financing is guaranteed.