Legal Marijuana and Bankruptcy

While states continue to legalize marijuana, the Federal government continues to consider it illegal. This is causing significant conflicts of law, and bankruptcy is no different.

United States Trustee Policy

On April 26, 2017, the United States Trustee issued a letter to its Chapter 7 and Chapter 13 trustees indicating “It is the policy of the United States Trustee Program that United States Trustees shall move to dismiss or object in all cases involving marijuana assets on grounds that such assets may not be administered under the Bankruptcy Code even if trustees or other parties object on the same or different grounds.”

Case Law

At least one court has found a trustee cannot administer an estate where the debtor’s business involves the sale of marijuana. The rationale was that although marijuana sales are be legal in some states, a trustee cannot take possession of inventory or operate that business without violating federal law. [In re Arenas (10th Cir. BAP 2015) 535 BR 845, 853-854 (affirming case dismissal)]

What Does This Mean?

This means if you run a marijuana business and need to file for bankruptcy, you may not be able too. This effect is not limited to just a marijuana business owner. This ban from bankruptcy can also reach a property owner who rents to a marijuana businesses, a business that sells products to marijuana businesses, or even a lawyer who provides services to a marijuana business???

Current Federal Legislation

On February 27, 2017, a bill titled H.R. 1227 was recently introduced to amend the Controlled Substances Act { 21 U.S.C. § 811} to remove administrative, civil, and criminal penalties as it relates to marijuana. It removes Marijuana and tetrahydrocannabinols from schedule 1. You can follow the bill here.

Conclusion

With 38 states and the District of Columbia currently now have law broadly legalizing marijuana in some form, these conflict of laws issues will just continue to rise and effect normal hard working individuals. Hopefully Congress will do something soon!  In the meantime, any and all individuals related to the marijuana industry should consult an attorney before deciding to do anything.

 

Disclaimer: The opinions in this blog do not represent those of the firm nor does it create any sort of attorney client relationship or give any legal advice. 

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