Current Trends in Bankruptcy for Cannabis Companies

In a recent bankruptcy decision by the Ninth Circuit Bankruptcy Panel (“BAP”), the BAP had the occasion to explore some of the intricacies of how the Bankruptcy Code interacts with the cannabis industry. Burton v. Maney, 610 B.R. 633 (B.A.P. 9th Cir. 2020) (“In re Burton”). While, generally, a putative debtor cannot enjoy the protections afforded by the Bankruptcy Code if it grows, cultivates or sells marijuana, recent court decisions have started to define how far the boundaries can be stretched. One Court recently summarized the dilemma as follows:

If the uncertainty of outcomes in marijuana-related bankruptcy cases were an opera, Congress, not the judiciary, would be the fat lady. Whether, and under what circumstances, a federal bankruptcy case may proceed despite connections to the locally “legal” marijuana industry remains on the cutting-edge of federal bankruptcy law. Despite the extensive development of case law, significant gray areas remain. Unfortunately, the courts find themselves in a game of whack-a-mole; each time a case is published, another will arise with a novel issue dressed in a new shade of gray. This is precisely one such case. In re: Sandra Mulul, 614 B.R. 699, 701 (Bankr. D. Colo. 2020) (“In re Mulul”).

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