Following the passage of Amendment 2, Florida has joined the growing number of states allowing legal use of cannabis for medical purposes. In doing so, it opens the doors to a legal cannabis industry whose sales have been estimated to be $6.7 billion in 2016. This presents an incredible opportunity for entrepreneurs and investors to enter what could be the next great American emerging market; yet the ongoing contrast between cannabis’ treatment under federal and state law poses risks for industry players, one of the most significant risks is the treatment of cannabis businesses by bankruptcy courts.
For businesses needing financial space to restructure ongoing endeavors, bankruptcy provides an avenue to either restructure debt and reorganize or liquidate assets to satisfy creditors, all while receiving bankruptcy protection for debtors. Unfortunately for businesses operating in the rapidly developing legal cannabis market, these much-needed protections are unavailable. To date, federal courts have generally refused to allow cannabis businesses to file petitions in bankruptcy court given the prohibitions against trafficking in cannabis under the Controlled Substances Act. The courts have similarly found that bankruptcy trustees cannot sell cannabis to satisfy creditors without violating federal law pursuant to the Controlled Substances Act, leading federal bankruptcy courts to reject restructuring, reorganization or liquidation plans involving the sale of cannabis, even in states where medical or adult use of cannabis is legal.
