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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Cannabis Businesses In Bankruptcy

By Aaron R. Cahn

Among the various state and federal insolvency schemes, the U.S. Bankruptcy Code is, as a practical matter, the only one that allows a business in financial distress to reorganize its debts and continue as a going concern, as opposed to simply closing up shop or selling its assets. The ability to file a federal bankruptcy case is thus an important resource for struggling businesses. It is particularly important to start-up businesses in an emerging field, such as the production and marketing of cannabis-related products.

It is precisely this resource, however, that is currently being denied to cannabis-related businesses. While many states have legalized the use of marijuana, whether in the form of medical marijuana dispensaries or simply approving it for recreational use, use of marijuana for any purpose is still barred by federal law, specifically, the Federal Controlled Substances Act, 21 U.S.C. §§801-904 (the CSA). Thus, cannabis-related businesses — whether growers, marketers, retail stores or medical dispensaries, not to mention anyone whose business involves dealings with one of the above categories — must make sure that they conduct their business so as not to violate federal law. Primarily, this means confining activities to one state so as not to invoke federal jurisdiction.

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