With Federal Bankruptcy Courts Unavailable, Marijuana Businesses Turn to State Options

The Schedule I status of marijuana makes it problematic for marijuana businesses to access traditional banking and financial services to obtain funds necessary to fund, operate and grow their businesses. Banks, often federally insured, are reluctant to lend to marijuana businesses fearing scrutiny by federal regulators. Banks must report suspicious activity, including business funds stemming from illegal activities, which under federal law includes the sale of marijuana, leaving banks who lend to marijuana business subject to federal enforcement actions and monetary fines.

Similarly, federal bankruptcy courts have been unavailable to marijuana businesses due to the Schedule I status of marijuana. The current position of the United States Trustee is that: 1) the bankruptcy system cannot be an instrument for an ongoing commission of a crime; and 2) trustees and other estate fiduciaries should not be required to administer assets in violation of federal law. In a letter issued by the Executive Office for United States Trustees (the Direction Letter), Chapter 7 and Chapter 13 trustees are directed to promptly notify the United States Trustee when a marijuana asset is discovered in a bankruptcy case. The Direction Letter advises that the United States Trustee's policy is to move to dismiss or object in each case involving marijuana assets, because they cannot be administered under the Bankruptcy Code.