In Re Arenas and Access to Bankruptcy for the Cannabis Client

Twenty-three states and the District of Columbia now have laws making the use of medical cannabis lawful, under certain circumstances. Four states and the District of Columbia have passed laws legalizing recreational use of cannabis. In addition, anticipated ballot initiatives in Nevada, Arizona, Ohio, and California, and anticipated legislation in Vermont, Massachusetts, and Rhode Island, may result in legalized adult use of cannabis in several other states. In 2014, the state-legal cannabis industry was estimated to have generated $2.6 billion in revenues, a figure that is almost certain to increase as additional states legalize cannabis. 

Despite this activity at the state level, the Federal Controlled Substances Act (the “CSA”) applies nationwide, and, under the CSA, the cultivation, processing, distribution, and sale of cannabis is unlawful, regardless of applicable state law. In this class, we address the extent to which cannabis businesses are able to seek relief from federal bankruptcy courts. We also discuss the decision of the 10th Circuit Bankruptcy Appellate Panel ruling in In Re Arenas and bankruptcy court decisions that have ruled on this issue. 

Learning Objectives:

I.     Understand the benefits that the bankruptcy code offers to distressed businesses

II.    Know the existing case law on whether cannabis businesses can obtain relief in federal bankruptcy courts

III.   Grasp why federal bankruptcy courts have been reluctant to allow cannabis businesses to obtain relief

IV.   Become familiar with other instances where such businesses have been denied access to courts

V.    Identify pending legislation that may make it easier for cannabis businesses to obtain relief in bankrupcty courts