A Higher Bankruptcy Case

Written by CFB Blogger. Posted in Blog

Whether or not you believe that marijuana should be legalized in the United States, it is currently legal in Colorado and Washington. However, since it is NOT (for all intents and purposes) legal in the other 48 states, many legal conundrums are being raised. It is illegal to transport “pot” across state lines and owners of marijuana businesses in Colorado and Washington may NOT deposit earnings from their companies in FDIC US banks. A problem indeed on many levels; the courts will soon be facing many legal issues related to the use, sale and bankruptcy surrounding cannabis. For related stories, please see articles on the bankruptcy and exit from bankruptcy of the favorite post-marijuana use of…Twinkies; on the blog pages of www.clientfirstbankruptcy.com. Recently, Frank Anthony Arenas, a wholesale producer and distributor of marijuana plants, filed Chapter 7 bankruptcy in U.S. Bankruptcy Court in Denver. He lists assets of $595,925, personal property of $47,191, a monthly income of $4,315.16, debt of $556,000 to unsecured creditors and some 225 hemp (marijuana) plants, valued at $250 each. According to an article appearing in The Denver Post by Tom McGhee, Judge Howard Tallman, a Denver bankruptcy judge, dismissed the bankruptcy saying that “although his activities are legal under Colorado law, he [Arenas] is violating the federal Controlled Substances Act” and that he realizes the “’result is devastating for the debtor.’” The news article continues saying that this case is at least the fourth such bankruptcy case involving a marijuana business rejected by bankruptcy courts in Colorado and California. Judge Tallman had arrived at a similar decision in a 2012 case involving Rent-Rite Super Kegs West Ltd, a company that ran a warehouse that was partly rented to a tenant that was growing marijuana. From the same news story, “Violations of federal law create significant impediments to the debtors’ ability to seek relief from their debts under federal bankruptcy laws in a federal bankruptcy court,” Tallman wrote in the Arenas bankruptcy decision. The judge further opined “the trustee can’t take control of assets or liquidate the inventory without running afoul of federal law. Nor can the debtors convert the case to Chapter 13, which would allow them to pay off debts over time because the plan would be funded ‘from profits of an ongoing criminal activity under federal law’ and involve the trustee in distribution of funds derived from violation of the law.” Sam Kamin, a professor at University of Denver’s Sturm College of Law was also referenced in the Post’s story. He averred, “Those who own and operate marijuana businesses are caught in a legal limbo with federal law restricting access to banking services and creating obstacles that other legitimate — at least by state law — businesses don’t. As long as it is illegal under federal law, we are going to have weird anomalies like that.” Mike Elliott, executive director of the Marijuana Industry Group, concurred, saying “the bankruptcy case is one more ‘unjust’ penalty that pot businesses face. It is amazing how far down the rabbit hole we are when we get to an issue like this. Marijuana businesses are unjustly penalized because the federal law is no longer based in reality.” Stay tuned, folks; it’s going to be an interesting time as the states decide whether or not to legalize the cultivating, sale and use of “weed”. It will also be fascinating as the bankruptcy courts and other legal entities chime in. We will continue to cover these smoke-filled stories on the blog pages of www.clientfirstbankruptcy.com. For information on filing for Chapter 7 or Chapter 13 personal bankruptcy protection, please call Client First Bankruptcy toll-free today at 800-383-6004 to speak with a qualified and compassionate bankruptcy representative. We answer our phone Monday through Friday from 8:30 a.m.-6:00 p.m. Central Time. For personal bankruptcy information that you can rely on, log onto www.clientfirstbankruptcy.com any time day or night.