In 2018, California joined a small group of states that have legalized the production, distribution, and possession of small amounts of marijuana for recreational use. Marijuana remains a Schedule I controlled substance under the federal Controlled Substances Act (CSA) of 1970. As more companies move into the legal marijuana business, conflicts between state and federal law will become more pronounced. A recent decision by a U.S. Bankruptcy Court offers an idea of what California business owners might expect. In re Way to Grow, Inc., et al (“WTG”), No. 18-bk-14330, order (Bankr. D. Colo., Dec. 14, 2018). If you have questions about any related matter, reach out to a California business lawyer.
Bankruptcy offers relief to individuals and businesses whose income is not sufficient to continue paying their debts. Businesses commonly use the liquidation procedures defined by Chapter 7 of the Bankruptcy Code, or the reorganization procedures of Chapter 11. A court-appointed trustee manages the debtor’s assets and makes payments on outstanding debts. At the end of a bankruptcy case, the court discharges some or all of the debtor’s remaining debts.
The bankruptcy code allows interested parties to move to dismiss a Chapter 7 or Chapter 11 case “for cause.” 11 U.S.C. §§ 707(a), 1112(b). All parties must receive notice of the motion, and the court must conduct a hearing. The statutes do not provide an exhaustive list of grounds for dismissal. The question before the court in WTG was essentially whether the trustee could lawfully administer the bankruptcy estate.