Last month, the United States Bankruptcy Court for the District of Massachusetts denied confirmation of a cannabis company employee’s Chapter 13 plan and dismissed his bankruptcy case. The employee, Scott H. Blumsack (the “Debtor”), is a general manager who is licensed in Massachusetts to work for Society Cannabis Co., a Massachusetts-licensed retailer, wholesaler, and producer of cannabis products.

The U.S. Cannabis industry stands on the cusp of springing forth as a fully formed industry once certain legislative hurdles are overcome. As one of the first major U.S.-based business advisory firms to establish a cannabis-specific practice, the FTI Consulting team understands the unique challenges of the cannabis industry from local, national and global perspectives.

The struggles of failing marijuana businesses to wind down and pay creditors in an orderly fashion serve no one. Among the problems marijuana businesses face such as lack of access to banking and onerous taxation stemming from IRC 280E is the lack of access to bankruptcy proceedings.

Recreational cannabis is now legal in 19 states and Washington D.C., driving the growth of legal cannabis sales estimated at $33 billion this year—up 32% from 2021—and expected to reach $52 billion by 2026.[1] This movement signals that financial investment in cannabis is not abating but accelerating notwithstanding the impact of the lingering COVID-19 pandemic.

There is seemingly, in the opinion of a great number of bankruptcy courts, a conflict between the United States Bankruptcy Code requirements that a debtor reorganize or liquidate “in good faith,” the federal Controlled Substances Act [21 USC § 841] (“CSA”) prohibiting, among other things, the distribution or sale of marijuana, and the laws of over half of the states in the country that authorize the sale of marijuana for medical and other purposes.

Novel corona virus and the global COVID-19 pandemic have had devastating impacts on financial markets and the economy generally as well as everyday life. All Canadian businesses now face challenges that were unimaginable even a month ago. Canadian corporations that entered 2020 with weak balance sheets and tightening access to capital, however, may find themselves standing at the precipice of difficult decisions.

With legislation, regulation, jurisprudence and practice evolving continually and rapidly, the need to stay current is more pressing than ever.

As we moved into the new year, we prepared a summary of the main trends in Canadian litigation, grouped into three categories:

• cannabis-related,
• class action, and
• energy sector litigation.

The first two will be felt nationally; the last is more focused on Alberta.

Cannabis-related Litigation

Post-legalization correction?

Courts struggled this year to find a balance between state-licensed cannabis activity and the federal right to seek bankruptcy protection under the Bankruptcy Code. During 2019, we had the first circuit-level opinion in the bankruptcy/cannabis space that appeared to open the door to bankruptcy courts, albeit slightly. We also had lower court opinions slamming that door shut. Below, we look at a few of the most important decisions issued throughout 2019 and analyze the current state of the law.

The Ninth Circuit Court of Appeals’ Garvin Decision

The legalization of marijuana and the Bankruptcy Code continue to proceed on a crash course. A majority of states have legalized marijuana for medical use, and a growing number have legalized recreational use as well. As a result, the industry is rapidly expanding – national sales in legal markets have increased 34 percent in 2018 to $10.8 billion.