Marijuana Businesses Can’t File For Bankruptcy

Banking Problems for Marijuana Companies Will ContinueMarijuana Businesses Can’t File For Bankruptcy?

Here’s why: The Feds v. the States While some state marijuana laws may allow recreational pot, marijuana cultivation , distribution , and possession are all criminalized under the federal Controlled Substances Act . Meaning that, as far as the federal courts are concerned, marijuana is illegal and marijuana businesses are illegal enterprises. This may not matter when it comes to criminal charges, but it is important when one considers that bankruptcy protections are federal laws , and therefore federal courts have sole jurisdiction over bankruptcy proceedings . And when ruling on bankruptcy applications, those courts are bound by federal law.

Arenas v. U.S. Trustee

When Colorado marijuana business owners Frank and Sarah Arenas filed bankruptcy last year, they were quickly rebuffed by US Bankruptcy Judge Howard R. Tallman, who said, “violations of federal law create significant impediments to the Debtors’ ability to seek relief from their debts under the federal bankruptcy laws in a federal bankruptcy court.”

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