There is some ongoing judicial indecision about the relationship between Schedule I and Chapter 7.
Schedule I of course is the list of substances considered by the U.S. government to have no approved medical use.
Chapter 7 is the liquidation chapter of the bankruptcy law. It generally requires that a trustee be appointed, and the truistee liquidate the assets of the defaulted company.
Consider what may happen if a state-legal marijuana company becomes insolvent. The owner/manager may file chapter 11 hoping for reorganization. Some of the creditors, looking for a better deal from liquidation, may petition to court for a chapter 7 conversion.
But tah entails that the liquidating trustee, acting under the authority of a federal court, is going to get into the business of selling (liquidating) to inventory of a company in the business of selling a schedule 1 drug.
This has seemed to some courts TOO paradoxical. The bankruptcy system after all is a federal not a state system, and the state-declared legality of these businesses in much of the company doesn't change this.
Ironically, the management of marginal cannabis companies stand to benefit from this indecision. Because the Chapter 7 remedy, on one reading of the situation, is not available, the creditors are in essence stuck with going along with a chapter 11 reorganization.
It doesn't always work out that way though. Consider In re Roberts (Bankr. D. Colo. September 23, 2022). In this case the Bankruptcy Court of the District of Colorado found that a debtor’s alleged ownership interest in cannabis-related companies neither compels a dismissal of the case nor prohibits a chapter 7 trustee from administering the debtor’s assets. Here is a link to extensive write-up of the case on the website of Duane Morris.
I expect to say something more about this general subject next week.
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