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The Bankruptcy StrategistFeaturesBankruptcyRegulation

Bankruptcy Court Ruling of Cannabis-Related Claims Not Violation of Controlled Substance Act, California District Court Rules

By Lawrence J. Kotler and Ryan Spengler
March 01, 2024

In In re Kojima, No. 8:23-CV-00167-RGK, 2023 WL 4602623 (C.D. Cal. July 17, 2023), the U.S. District Court for the Central District of California (the court) affirmed a bankruptcy court's order approving a Chapter 7 trustee's proposed settlement of cannabis-related state court claims held by creditors of the estate.

In so ruling, the court distinguished the case at bar from similar cases, holding that a bankruptcy court's administration of cannabis-related state court claims against a debtor's estate is not a violation of the Controlled Substances Act (the CSA).

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Background

In 2016, Don and Susan Kojima (the debtors) formed the Adelanto Entities to purchase approximately 47 acres of land in Adelanto, California. The debtors purchased the property with the express purpose of cultivating cannabis alongside their son, Cameron Kojima (collectively with the debtors, the Kojimas). Investors Chase Miles Kaufman, Michael Garrison, and Zachary Powers (collectively, KGP) entered into a profit-sharing agreement with the Adelanto Entities, permitting KGP to use the Adelanto Entities' cannabis licenses for independent businesses. In 2019, the Kojimas became aware that KGP were noncompliant with state and local cannabis laws regarding the identification and recordation of cannabis products. In addition, KGP made allegedly unauthorized transactions leading to $360,000 in damages being assessed against the Adelanto Entities and the debtors. As a result, the Kojimas terminated the profit-sharing agreement with KGP shortly thereafter.

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