Cannabis Businesses, Once in Trouble, Find No Good Way to Escape – Bloomberg Law

MedMen Enterprises Inc. thought it had found a niche in the exploding retail market for legalized marijuana. It invested heavily in brick-and-mortar space in high-income areas like Beverly Hills and New York where it believed upscale customers would want to shop.

The company soon learned that even well-heeled cannabis consumers would rather drive a few miles to get a lower price, and that controlling costs is integral to success.

Ordinarily, when a business finds itself in dire straits because of that kind of miscalculation, it can file for Chapter 11 to get breathing room from creditors while restructuring its debts. The bankruptcy code gives a company substantial powers to get out of leases and contracts, and to force creditors to accept less than they’re owed.

But with marijuana still illegal under U.S. law, cannabis companies are blocked from using federal bankruptcy court. Restructuring and insolvency professionals have to turn to other remedies—out-of-court workouts, assignments for the benefit of creditors, and receiverships.

But those approaches rarely allow owners to stay in control. The legal status of marijuana blocks access to commercial banks for financing, and liabilities from states’ rush to tax legal marijuana sales make it difficult to negotiate resolutions.

“No one can do anything—companies can’t file bankruptcy; investors can’t foreclose—it just creates a frozen market,” said Ted Lanes, a court-appointed receiver and restructuring consultant who previously directed operations for MedMen.

The block on cannabis companies using bankruptcy courts was evidenced again Jan. 13, when the U.S. Bankruptcy Court for the District of Colorado dismissed the Chapter 11 case of United Cannabis Corp. at the request of the U.S. Trustee, the Justice Department’s bankruptcy watchdog. United Cannabis had argued that it should be permitted to remain under bankruptcy protection because it deals with hemp products and CBD, distinguishable from marijuana’s high-inducing

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