In contrast with a majority of bankruptcy courts that routinely dismiss cannabis-related cases for perceived violations of the Controlled Substances Act (CSA), the U.S. Bankruptcy Court for the Central District of California in the recent opinion In re Hacienda, No. 2:22-BK-15163-NB, (Bankr. C.D. Cal. July 11, 2023), refused to conform to the same historical standard. Instead, the Bankruptcy Court struck down the U.S. trustee's motion to dismiss not once but twice in favor of confirming a marijuana business' Chapter 11 plan of reorganization.
In this case, the debtor, Hacienda Co. LLC, was in the business of wholesale manufacturing, packaging, and distribution of cannabis products to dispensaries within the state of California under the name "Lowell Herb Co." aka "Lowell Farms."
In 2021, the debtor transferred its assets, including intellectual property and drug-related goods, to a publicly traded Canadian company that changed its name to Lowell Farms Inc. (LFI). At the time of this transfer, the cannabis industry was legal under Canadian law and California state law. In exchange for its assets, the debtor received a 9.4% share in LFI.
On Sept. 21, 2022, the debtor filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code (the code). As part of its "plan" for emerging from the bankruptcy, the debtor intended to monetize its LFI shares by liquidating these shares over time to avoid flooding the market and diluting the value of the shares. The debtor believed that by engaging in this strategy, the value of the LFI shares would be maximized for the benefit of the debtor's estate and its creditors.
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