As the trend to legalize the medical and recreational
use of marijuana continues to blaze through the states, federal
law, and bankruptcy courts by extension, have not yet followed
suit.1 Bankruptcy
courts have historically prevented cannabis - and even
cannabis-ancillary companies - from filing for protection under the
United States Bankruptcy Code2 because marijuana remains
illegal under the Controlled Substances Act (CSA) at the federal
level.3
Consequently, financially distressed companies in states
where marijuana is legal still have limited restructuring options
and must rely on state law options.
Typically, traditional businesses can file for bankruptcy in order to obtain "breathing room" from creditors, restructure debts, and escape certain litigation and collection efforts. So how does a struggling cannabis business, or a business that provides goods or services to the cannabis industry, avail itself of similar legal relief in order to compliantly reset the business on a new path, or even responsibly exit the market? While this lack of bankruptcy protection can be detrimental for many...
