There’s no question that the business of marijuana is booming. Twenty-nine states now allow it for medicinal purposes and nine other states either allow or have proposed laws to allow it to be used for recreational purposes. Some estimates are saying that the industry could generate revenue surpassing $24 billion by 2025.
So yes, it seems like a good time to be in the marijuana business. Well, it better be. Because if you’re in the business and you file for bankruptcy protection don’t expect any help from the federal government.
As reported by Forbes contributor Tom Angell, the Justice Department last week reminded everyone that marijuana is still illegal in the eyes of Washington and that the federal bankruptcy system will not come to the aid of any cannabis-related company looking to liquidate or restructure.
“The (government’s) response to marijuana-related bankruptcy filings is guided by two straightforward and uncontroversial principles,” two Justice Department officials wrote in an industry journal. “First, the bankruptcy system may not be used as an instrument in the ongoing commission of a crime and reorganization plans that permit or require continued illegal activity may not be confirmed. Second, bankruptcy trustees and other estate fiduciaries should not be required to administer assets if doing so would cause them to violate federal criminal law.”
It’s not just pot shops that fall under the government’s definition. Any business that handles cannabis or touches the plant would be prohibited from any bankruptcy protection, and that would anyone who earns money from renting property, selling fertilizer, leasing equipment or profiting from any investment in the industry.
All “downstream participants . . . are in violation of federal criminal law,” the Justice Department says.
There’s little hope that the department’s position will change under the current administration. For those businesses operating in the cannabis industry my best advice is: make money. And don’t go bankrupt.