MJBizMag July 2020 - 65

I
n a recession, there are bound to be
business casualties-particularly
in a high-risk, nascent industry
such as hemp. Hemp companies have
experienced a perfect storm of obstacles
since legalization in late 2018-an
uncertain regulatory environment,
overproduction in 2019, ongoing
challenges with access to banking and
financial services and, now, COVID-19.
In short, the odds are stacking up
against hemp entrepreneurs.
Bill Hilliard, CEO of Winchester,
Kentucky-based Atalo Holdings, a
hemp and CBD company that filed for
Chapter 7 bankruptcy protection in
March, said the current, challenging
state of the hemp market stems from
a number of factors that are beyond
the control of most hemp companies,
including regulatory uncertainty due
to a delay of guidelines from the U.S.
Food and Drug Administration and the
continued struggle to secure financial
services from lenders and credit cardprocessing
companies.
" We're in good company in our
bankruptcy here in Kentucky; four of the
primary participants in (Kentucky's 2014
hemp pilot) research program have all
sought bankruptcy protection, " Hilliard
said. (See " Recent Hemp Bankruptcy
Filings " on page 64.)
" It's a convergence of overproduction
and a lack of good guidance from the
FDA and USDA (U.S. Department of
Agriculture) in what our market opportunities
are, " Hilliard said.
Overproduction during the 2019
crop year was a result of the USDA
being aggressive about finding a new
agricultural crop for the American
farm-with support from the industry,
Hilliard said.
" We led the charge ... and we
supported that 100%. But (the state
agriculture departments) were so
enthusiastic that no one contemplated
that we would have the massive
production that American farmers
produced in 2019, " he said. " At the
same time, everyone was expecting that
the FDA would come out with some
Bankruptcy
guidance on what the markets were for
CBD, and, of course, that hasn't really
materialized in a meaningful way so far. "
Bankruptcy Basics
Before 2014, cannabis companies of
any kind generally were not eligible for
bankruptcy protection under federal
law, including ancillary businesses that
derived any portion of their revenue
from cannabis. But that changed for
hemp and CBD businesses after hemp
cultivation was permitted through
state-led pilot research programs under
the 2014 Farm Bill and subsequently
legalized as a commodity under the
2018 Farm Bill and removed from the
Controlled Substances Act.
Today, companies associated with
hemp and its derived products can
legally file for bankruptcy, but their
counterparts in the marijuana industry
cannot (see " Bypassing Bankruptcy " on
page 52), because marijuana remains a
federally illegal controlled substance.
Filing for bankruptcy protection helps
companies that have found themselves
underwater financially to either
liquidate their assets to pay debts or to
reorganize their business and finances
to continue operating.
Lawyer Up
Business owners need to get real about
their debts sooner rather than later,
attorneys agreed, and if they feel as if
they're treading on dangerous ground,
it's better to call an insolvency and
bankruptcy attorney before things get
too bad.
" We're often late to the party, " said
Michelle Novick, a partner with the
Saul Ewing Arnstein & Lehr law firm in
Chicago. " We want to be right there to
help them make good business decisions
and understand their business at a time
when things are difficult. "
Business owners typically will know
when they're in trouble-they can't pay
bills, default on a contract, start to see
lower sales and profits or more expensive
Lessons Learned
from a Hemp
Pioneer
Filing for
bankruptcy
protection
isn't an ideal
destination
for any
company.
However,
the stigma
around it
has been
significantly lessened in recent
years-especially in an industry as
tumultuous as hemp, according to
Bill Hilliard, CEO of Winchester,
Kentucky-based hemp company
Atalo Holdings. The company filed
for Chapter 7 bankruptcy in March
and is in the process of selling off
assets to pay its creditors.
" I've actually been personally a little
bit surprised. ... The vast majority
of feedback that we've gotten
has been very positive-about
our company and the reputation
that we've had and support for
what we've tried to do in the hemp
business, " Hilliard said. " And that's
been rewarding under unfortunate
circumstances. "
Bill Hilliard
Hilliard said while the uncertainties
confronting the hemp industry
have cost many companies
dearly-especially over the past
year-there is much to learn from
the outcome.
" People need to know that there
are great opportunities in the
hemp industry, and I think those
opportunities still exist, but I think
they need to be tempered with a
little bit of rational thinking as to
what are the best ways to pursue
those opportunities. They're just
not as expansive as they once
were, " Hilliard said.
" My advice is to have a controlled
growth strategy as opposed to
just grow as fast as you can. I think
a lot of hemp companies grew to
stay ahead of the competition as
opposed to growing in order to
create a valid marketplace. "
- Laura Drotleff
July 2020 | mjbizdaily.com 63
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MJBizMag July 2020

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