In an article published by the American Bankruptcy Institute last Friday, director of the Justice Department’s Executive Office for U.S. Trustees, Clifford J. White III, and the trial attorney for the agency, John Sheahan, explained that cannabis businesses cannot claim bankruptcy because of their lingering Schedule I status.
“Marijuana continues to be regulated by Congress as a dangerous drug, and as the Supreme Court has recognized, the federal prohibition of marijuana takes precedence over state laws to the contrary,” the article stated.
The Justice Department noted that the United States Trustee Program’s stance remains firm and that no assets associated with the cannabis industry can be liquidated or restructured following bankruptcy.
“The USTP’s response to marijuana-related bankruptcy filings is guided by two straightforward and uncontroversial principles,” the two Justice Department officials pointed out. “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.”
“Not only would a trustee who offers marijuana for sale violate the law but so, too, would a trustee who liquidated the fertilizer or equipment used to grow marijuana, who collected rent from a marijuana business tenant, or who sought to collect the profits of a marijuana investment,” White and Sheahan said.
With the DOJ cracking down, the lines are blurred on whether these businesses are considered legal, or illegal.