Cannabis companies can find themselves in financial distress but are generally locked out of the federal bankruptcy courts. What are their options? Perkins Coie Associate Tommy Tobin sits down with Billy Organek, program fellow at Harvard Law School’s Bankruptcy Project, to discuss the importance of bankruptcy law and options companies can seek outside of the
Distressed Cannabis: Growing Room for Bankruptcy in Ninth Circuit
Tough economic conditions are leaving cannabis businesses with fewer financing and transaction options. Chapter 11 bankruptcy, a tool which many businesses have used to reorganize or liquidate, has historically been inaccessible to cannabis and cannabis-adjacent businesses because potential (or actual) breaches of the Controlled Substances Act (CSA) were viewed as per se cause for dismissal. But the Los Angeles bankruptcy court presiding over The Hacienda Company, LLC recently denied a motion to dismiss the case of a debtor in the business of wholesale manufacturing and packaging of cannabis products.1 The decision gives hope that bankruptcy could be a viable path to maximize value for creditors and purchasers through a sale structured as one of intellectual property (IP), rather than one of an operating cannabis business.
The decision in Hacienda builds on the other recent U.S. Court of Appeals for the Ninth Circuit decisions allowing narrow windows for cannabis-adjacent debtors to benefit from bankruptcy.…
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