The Uncertain Future of Distressed Cannabis Bankruptcies and the… – New Cannabis Ventures

Guest post by Keith C. Owens, Partner  at Fox Rothschild LLP

Like most American businesses, COVID-19 has placed a heavy strain on cannabis-related businesses, which were already struggling due to the highly-regulated nature of the industry, overplanting by farmers and competition from black market suppliers.  While bankruptcy would be a useful tool to enable such companies to restructure their financial affairs or to liquidate in an orderly fashion for the benefit of creditors, bankruptcy has generally not been available.  However, this may change under a Biden Administration[1] depending on the outcome of the Senate runoff races in Georgia in early January 2020, which will determine whether or not the Republicans maintain control of the Senate.

This article briefly discusses the current status of federal law, how Bankruptcy Courts have addressed bankruptcy cases filed by cannabis-related businesses, the potential impact of the 2020 federal elections on the right of cannabis-related businesses to seek bankruptcy relief, and alternatives to bankruptcy currently available.

Marijuana Remains an Illegal Schedule 1 Controlled Substance under Federal Law

Under the Federal Controlled Substance Act (the “FCSA”), it is illegal to rent, lease, or make available for use or profit from a location for the manufacture, storing or distribution of controlled substances. With few exceptions, federal law imposes criminal liability for aiding and abetting the unauthorized manufacture, distribution, or dispensing of marijuana, which is a Schedule 1 controlled substance.[2] Similarly, the FCSA makes it unlawful for any person knowingly or intentionally to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute or dispense a controlled substance. 21 U.S.C. § 841(a)(1). The United States Department of Justice has stated its commitment to enforce the FCSA consistent with Congress’ determination that “marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is

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