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Courts just saying no to bankruptcy protection for pot businesses

It may seem hard to believe but the number of states that have legalized marijuana in some capacity -- either medicinal or recreational -- currently sits at 23. While it seems unlikely that this will happen here in Arkansas anytime soon, it has nevertheless been a fascinating phenomenon to monitor from a criminal law, business law and, most recently, bankruptcy law perspective.

Indeed, we're now starting to see federal courts being called upon to decide the issue of whether these marijuana businesses -- dispensaries, growing facilities, etc. -- should be allowed to seek bankruptcy protection.

One of the more illustrative cases on this topic was recently handed down by the Tenth Circuit Bankruptcy Appellate Panel, which was called upon to consider a decision by the U.S. Bankruptcy Court for the District of Colorado dismissing the bankruptcy filing of the proprietor of a marijuana business.

According to the facts of the case, a married couple owned a commercial building in the Denver area that was comprised of two units. The first of these units was used by the husband for the sole purpose of growing and selling marijuana wholesale, while the second unit was leased to a third party marijuana dispensary, all perfectly legal enterprises under state law.    

When the couple began experiencing financial problems, they sought the protection offered by Chapter 7 bankruptcy, which allows those who qualify to significantly reduce or eliminate many types of debt.

Trouble soon followed, however, after the trustee overseeing the case requested that the bankruptcy court dismiss the couple's petition owing to the nature of their underlying business operations, which while legal under state law were still very much illegal under federal law.

We'll continue to examine this story in our next post.

In the event you are experiencing seemingly insurmountable debt -- credit cards, medical bills, auto loans -- consider speaking with an experienced legal professional about your rights and options as they relate to bankruptcy. 

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