In a recent legal development that underscores the intricate interplay between federal bankruptcy law and the cannabis industry, a court case has emerged involving a bankruptcy filing by an employee of a cannabis company. It is well established that, because cannabis is generally considered a controlled substance under the federal Controlled Substances Act (CSA), certain cannabis related companies are precluded from obtaining debt relief through bankruptcy. Now, individuals employed by cannabis companies might find themselves in the same boat. In Blumsack v. Harrington, 2024 Bankr. LEXIS 560* (March 2024), the United States Bankruptcy Appellate Panel for the First Circuit (the “Bankruptcy Appeals Court”) upheld, albeit on different grounds, the United States Bankruptcy Court for the District of Massachusetts’ dismissal of the Chapter 13 bankruptcy filing of an individual employed by a cannabis company, because of the source of the individual’s income.Continue Reading Budtender Bankruptcy Blindside

On September 20, 2023, the U.S. Bankruptcy Court for the Central District of California (“Court”) confirmed a plan for a cannabis-related business (“Debtor”) to sell its equity interests in a Canadian cannabis company, Lowell Farms, and distribute the proceeds to its creditors.  In contrast with bankruptcy courts that routinely dismiss cannabis-related business filings primarily due to alleged Controlled Substance Act (“CSA”) violations, the court found that any CSA violations occurred before the bankruptcy, and that the “Debtor’s orderly liquidation of its stock in Lowell Farms, and distribution of the proceeds to creditors is entirely consistent with the objectives and purposes of the Code.” (In re The Hacienda Company, LLC, __ B.R. __, 2023 WL 6143216 (Bankr. C.D.Cal., September 20, 2023))  The court’s ruling may open a new path for  cannabis-related businesses to utilize the U.S. Bankruptcy Courts. Continue Reading Bankruptcy Court Approves Cannabis Debtor’s Chapter 11 Plan

As the cannabis industry matures, there will be winners and losers.  Losers lack access to the U.S. Bankruptcy Code.  Marijuana related assets cannot be sold free and clear of liens and encumbrances via the tried and true bankruptcy section 363 sale, which leaves the loser’s creditors without the best tool to maximize the value of the loser’s assets, and deprives acquirers of a federal court order conveying assets.  What’s the state of play, and what’s the alternative for the losers, their creditors, and the companies that would acquire them?Continue Reading Budding Woes: Navigating the Weedy Waters of Cannabis Companies in Financial Distress

In a noteworthy decision, the Bankruptcy Appellate Panel for the Ninth Circuit overturned a dismissal of a bankruptcy case, which the lower court had dismissed based on its belief that the landlord debtor was receiving rental income from a marijuana dispensary.  The decision is significant because it holds that a bankruptcy cannot be dismissed simply because of the mere presence of a marijuana business or related proceeds in the case.  Rather, under this decision, the dismissal of a bankruptcy must be supported by specific factual findings that demonstrate that the debtor violated federal law or that the bankruptcy trustee would be required to administer proceeds of a (federally) illegal business.
Continue Reading Dismissal of “Marijuana” Bankruptcy Not Automatic as Bankruptcy Appellate Court Overturns Dismissal of Bankruptcy Case of Landlord Debtor with Dispensary Tenant