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Pot and Bankruptcy Don’t Mix

Marijuana

Florida continues to slowly embrace marijuana. It is currently legal to use marijuana if you have a prescription to treat a medical condition, and dispensaries are popping up across the state to fill those scripts. Currently, the state has not decriminalized the drug for recreational use, though that could be on the horizon. Indeed, many counties (like Miami-Dade) are giving police officers discretion about whether to arrest someone for marijuana possession/use or to just give them a citation instead.

Regardless of the state laws, however, marijuana remains a scheduled substance at the federal level. As a result, any small business owner who traffics in marijuana, even if legally, will not be able to take advantage of bankruptcy protection.

Why Can’t a Marijuana Business File for Bankruptcy?

Currently, marijuana is a schedule 1 drug under the Controlled Substances Act of 1972. Growing and selling marijuana is therefore a federal crime.

When you file for Chapter 7 bankruptcy, the trustee liquidates your business by selling assets. As the National Law Review explains, the trustee cannot break federal law, so the trustee wouldn’t be able to sell your marijuana. Because of this situation, a small business that traffics in marijuana cannot file for bankruptcy protection.

This prohibition can also apply to businesses that don’t grow or sell marijuana themselves but traffic in equipment that can be used to grow marijuana. For example, your business might sell hydroponic gardening equipment to a marijuana grower. If so, you also cannot file for bankruptcy protection if you wouldn’t have a business but for your marijuana clients.

The prohibition might also extend to personal bankruptcies of people who work for business connected to the industry. The Wall Street Journal recently reported that a woman who worked for a staffing agency was told she can’t file for bankruptcy by the Justice Department because her employer hires marijuana workers. The Justice Department’s position in this case hasn’t been fully litigated in court, but it shows how difficult it is to file for bankruptcy if your business is in any way connected to the weed industry.

What Can You Do?

As marijuana grows more popular, more small business will in some way become connected to the industry. Many of them will no doubt experience financial problems, like many businesses do. If you can’t pay your bills, you should consider your options, such as:

  • Simply defaulting and walking away. This is risky if you were a sole proprietor, since your personal assets are now at risk.
  • Working with your creditors to restructure your debts. They might be willing to reduce the amount owed in order to get paid.
  • Changing your business so it is no longer connected to marijuana.

There is usually no clear-cut obvious choice. If your small business is in financial distress, please contact Nowack & Olson today. We are a leading bankruptcy firm in South Florida that has helped numerous small and family businesses liquidate with Chapter 7 or reorganize with a Chapter 11 bankruptcy.

Contact us today at 888-813-4737 to schedule an initial consultation with one of our Plantation bankruptcy lawyers. We can help you develop a game plan for getting out of debt.

Resources:

natlawreview.com/article/are-bankruptcy-courts-available-cannabis-industry

wsj.com/articles/pro-bankruptcy-briefing-pot-staffing-employee-cant-file-for-bankruptcy-phi-can-hire-houlihan-lehman-brothers-sues-u-k-affiliates-11556713531

https://www.floridabankruptcynow.com/teaching-young-children-financial-responsibility/

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