Cannabis ruling offers narrow path to bankruptcy perks

A recent California court opinion allowing a former cannabis company to continue its Chapter 11 case offers a new but narrow pathway for similar businesses to pursue bankruptcy.

The US Trustee’s policy largely bans cannabis companies from filing for bankruptcy because cannabis is illegal at the federal level. But the US Bankruptcy Court for the Central District of California’s published Jan. 20 opinion allowed the Hacienda Company’s Chapter 11 to proceed, saying the company had removed its wholesale cannabis product manufacturing and packaging business by the time it filed and was not looking to reorganize as a cannabis concern.

Judge Neil W. Bason’s opinion espoused a “middle road” interpretation of the bankruptcy code, in which a court assesses a would-be debtor’s facts and circumstances before deciding whether to let a Chapter 11 case continue.

The opinion, while limited to the court’s jurisdiction, offers a glimmer of hope that businesses with former cannabis connections, and the right set of facts, could use bankruptcy to liquidate and pay off creditors.

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