MJBizMag July 2020 - 54
RECESSION ROAD MAP
BYPASSING
BANKRUPTCY
Marijuana companies shut out from Chapter 11 protection
have other options By Michael Pankow and Jack Ucciferri
M
arijuana companies have been
relatively fortunate during the
COVID-19 pandemic, with
many deemed essential businesses able to
keep their doors open. But with the nation's
economy facing a major downturn,
some marijuana companies will probably
have to restructure their operations after
landing in financial hot water.
Their options will be more limited
than mainstream companies-but they
will have options.
Because Chapter 11 federal
bankruptcy protection is unavailable
to many cannabis-related businesses,
owners and managers might have
questions about how to legally
restructure their operations. Here are
answers to frequently asked questions.
Why can't marijuana
businesses file for
bankruptcy?
Regardless of state law, marijuana
remains federally illegal under the
Controlled Substances Act. The federal
prohibition extends to possession and
other activities such as manufacturing
or distribution.
Bankruptcy courts are federal and
will, of course, enforce federal law. As
one bankruptcy judge stated, " A federal
court cannot be asked to enforce the
protections of the Bankruptcy Code in
aid of a debtor whose activities constitute
a continuing federal crime. "
Michael Pankow
Jack Ucciferri
Would my company be
considered a marijuana
business barred from
bankruptcy?
That depends mainly on whether
your company falls within a
federally prohibited category and the
importance of the prohibited activity
to the business. Case precedents are
developing, and the view of courts
might vary to some extent.
Businesses that " touch the plant, " such
as growers, processors, distributors and
retailers, likely will be barred from federal
bankruptcy relief. Other potentially
disqualifying activities include:
52 Marijuana Business Magazine | July 2020
* Handling the proceeds of marijuana
transactions (considered money
laundering).
* Manufacturing or distributing
equipment " having reasonable cause
to believe " that it will be used to
manufacture marijuana.
* Maintaining a place for
manufacturing or distributing
of marijuana.
As a result, marijuana-related
equipment dealers and landlords have
been found to violate the Controlled
Substances Act and barred from
bankruptcy relief. More broadly, it
is a federal crime to knowingly and
MJBizMag July 2020
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