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The Bankruptcy StrategistFeaturesBankruptcyLitigation

CA Bankruptcy Court Throws Regulatory Concerns Aside and Sides With Cannabis Business' Chapter 11 Plan

By Lawrence J. Kotler and Ryan Spengler
December 01, 2023

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.

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Background

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.

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