As most of us know, bankruptcy is just not an option for the cannabis industry or those even affiliated with it. To date, courts have generally ruled that debtors who work in the cannabis industry or derive meaningful income from cannabis activity (directly or indirectly) cannot use bankruptcy. This is in response to the U.S. Trustee’s office practice of filing motions to dismiss bankruptcy cases where the debtor has a direct or tangential connection to the cannabis industry.
While its availability has been litigated here and there, it’s likely that the demand for such an option will increase as the market continues to grow. In the latest and greatest, and perhaps in response to the rising demand, the Ninth Circuit Court of Appeals shed some hope for the future. Garvin v. Cook Investments NW involved five real estate holding companies that filed Chapter 11 reorganizations in Washington. One of those five debtors leased property to a company that used the land to grow cannabis in compliance with Washington state law. After filing for bankruptcy, the debtor-landlord continued to accept rent from the cannabis business.
The debtor-landlord proposed a plan of reorganization that would pay off its debts, which included some of the rent received from the cannabis business. The U.S. trustee objected, and the debtor-landlord reformulated its plan by removing all references to use of the rent proceeds. The debtor-landlord specifically noted that it would earn enough revenue from other sources to pay its creditors. However, the debtor-landlord admitted it would continue accepting rent from the cannabis tenant because the tenant had the right to remain in possession of the premises so long as it continued paying rent, and it had showed no interest in abandoning that right.
Read more at cannalawblog.com