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Marijuana: From Greenhouse to Courthouse

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Copyright © American Bankruptcy Institute Marijuana's Journey from Greenhouse to Courthouse Can Cannabis Debtors Seek Bankruptcy Protection? May 2019 BY BY G. DAVID DEAN AND KATHERINE M. DEVANNEY I n 1970, Congress passed the Controlled Substances Act (CSA), 1 a "lengthy and detailed statute creating a comprehensive framework for regulating the produc- tion, distribution, and possession" of five newly created schedules of controlled substances. 2 Schedule I drugs are categorized as the most dangerous because of their "high potential for abuse, lack of any accepted medical use, and absence of any accepted safety for use in medically supervised treatment." 3 Marijuana was classified as a Schedule I drug in part based on the recommendation of the assistant secretary of the agency now called the Department of Health and Human Services, "at least until the completion of certain studies now underway." 4 To date, almost 50 years later, marijuana remains classified as a Schedule I drug. Despite marijuana's classification as a Schedule I drug pursuant to the CSA, in 1995 California passed the Compassionate Use Act, permitting cannabis use for medicinal purposes. 5 Other states have since followed suit with their own medical and recreational marijuana regulatory schemes. As such, businesses involved in can- nabis are faced with a labyrinth of confusing, contradictory and multijurisdictional regulations that affect everything from finance and banking to zoning and land use. These problems are particularly accentuated when an individual or business in the cannabis industry is facing insolvency. Because bankruptcy is a federal remedy, bank- ruptcy courts have historically been reluctant to grant relief to debtors involved with marijuana, regardless of any applicable state law. Recent cases suggest that the tide might be turning, and cannabis businesses might soon have a clearer path toward bankruptcy protection. Without delving too deeply in the weeds, this article examines the current state of the law from the perspective of the cannabis debtor and its creditors. It concludes with certain practice pointers for chap- ter 11 debtors and potential debtors in the marijuana business. The Voluntary Cannabis Debtor Patricia Olson was 92 years old, legally blind and in desperate need of bankruptcy protection to pre- vent foreclosure of her commercial real property. Notwithstanding Olson's sympathetic circumstances, 1 21 U.S.C. § 801, et seq. 2 Gonzales v. Raich, 545 U.S. 1, 24 (2005). 3 Id. at 2. 4 Id. at 14 (citing 21 U.S.C. §812(b)(1). 5 Cal. Health & Safety Code § 11362.5(b). Katherine M. Devanney Cole Schotz PC Wilmington, Del. G. David Dean Cole Schotz PC Wilmington, Del.

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