On January 20, 2023, as few courts, such as the U.S. Bankruptcy Court for the District of Colorado, have consistently done, the U.S. Bankruptcy Court for the Central District of California (the “Bankruptcy Court”) further hewed a path for former cannabis businesses to utilize the protections of the U.S. Code's eleventh title (the "Bankruptcy Code") in spite of a mostly inhospitable (and frequently hesitant) jurisprudence--and the steady opposition of the U.S. Trustee's Office (the "UST").

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.

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.

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.

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

In a prior post, we examined whether state-licensed marijuana businesses, and those doing business with marijuana businesses, can seek relief under the Bankruptcy Code.

Have you ever wanted to start your own marijuana cultivation and distribution business? Do you see billboards on the highway advertising pot-growing seminars and think, “Maybe I should go?” Does the grass seem greener on the other side?