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With Federal Bankruptcy Courts Unavailable, Marijuana Businesses Turn to State Options

By David E. Sklar and Cheryl A. Santaniello 
June 01, 2022

At present, 25 states, including the District of Columbia, have legalized marijuana. While the number of states and territories with laws and policies allowing for the cultivation, sale, distribution and possession of marijuana for recreational or medicinal purposes has grown over the last decade, marijuana continues to be classified as a Schedule I controlled substance, in the same category as heroin and ecstasy, under the federal Controlled Substance Act (CSA). The growing disconnect between federal and state marijuana laws and policies creates legal risks for not only those engaged in the cultivation and sale of marijuana, but also for suppliers, landlords, investors and financial institutions directly or indirectly related to marijuana businesses.

The Schedule I status of marijuana makes it problematic for marijuana businesses to access traditional banking and financial services to obtain funds necessary to fund, operate and grow their businesses. Banks, often federally insured, are reluctant to lend to marijuana businesses fearing scrutiny by federal regulators. Banks must report suspicious activity, including business funds stemming from illegal activities, which under federal law includes the sale of marijuana, leaving banks who lend to marijuana business subject to federal enforcement actions and monetary fines.

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