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Bankruptcy not an option for those working in cannabis industry

On Behalf of | Jul 6, 2022 | Bankruptcy |

Recreational marijuana is legal in many states, although not yet Virginia, but medical marijuana is in fact legal in the Old Dominion. However, if you earn any kind of income, even if it’s indirect, from the cannabis industry, you might be banned from filing for bankruptcy.

Why is filing bankruptcy not an option in the cannabis industry?

Many states have legalized medical cannabis programs. There are now more people and companies involved in the cannabis industry than ever. Unfortunately, while the industry is thriving and many businesses are doing well, people who earn income even indirectly from cannabis could be barred from ever filing for bankruptcy.

The reason behind those earning income in the cannabis industry being banned from filing bankruptcy is that cannabis is illegal at the federal level. The federal laws supersede those on the state level.

What is the structure of the Bankruptcy Code?

A business that runs into financial trouble and needs to file for Chapter 11 bankruptcy can do so to reorganize its debts. At the same time, that business is allowed to continue operations. This means that a person who has a regular income could rely on Chapter 13 bankruptcy to pay off part or even all of their debts. In order to do that, it’s necessary for a repayment plan to be proposed in good faith.

With cannabis being illegal at the federal level, this makes filing for bankruptcy impossible if a person receives income from that industry. This even includes individuals who earn indirect income from anything related to cannabis. The Controlled Substances Act (CSA) is responsible for this restriction. Marijuana is classified as a Schedule I drug per the Act as it’s believed to have a higher potential for abuse.

Sadly, if you work in the cannabis industry and need to file for bankruptcy, you might have to dissolve your business to do so or find a different job.