Options for Patrons and Purveyors of Medical Marijuana in Financial Distress

Options for Patrons and Purveyors of Medical Marijuana in Financial Distress

As I have blogged about before, the marijuana business is tough because of suffocating regulations. And if you are a consumer in need of medical marijuana, or a business engaged in the area, bankruptcy laws may not offer much refuge. Bankruptcy judges have a tendency of finding that when it comes to marijuana in bankruptcy, it does not matter what state law says. What matters for these courts is that because of the Controlled Substances Act, marijuana use “remains illegal under federal law.”

This can be especially troublesome for medical marijuana users going through bankruptcy. Under Chapter 13 of the Bankruptcy Code, debtors need to either pay off all their debts, or commit five years of their disposable income to pay back creditors. Ordinarly, medical expenses don’t count as disposable income. But because of the Controlled Substances Act, medical marijuana cannot get excluded from disposable income.

The story is not brighter for businesses that deal with marijuana, even those whose dealings with marijuana are tangential. Renting space to marijuana dispensaries and growers have disqualified businesses from the protections of bankruptcy. Bankruptcies are conducted under federal law, and are overseen by federal courts that feel constrained to allow only what is legal under federal law.

But there is hope for financially distressed patrons and business involved in marijuana: assignment for the benefit of creditors-abbreviated ABC. Unlike bankruptcies, ABCs are established under state law. Like bankruptcy, ABCs serve the interests of both debtors and creditors. Debtors get the opportunity to shed off their debt. Creditors get the benefit of an orderly system for getting some assets out of the debtor. That’s why the Florida Legislature created the ABC statute, codified in Chapter 727, Florida Statutes: “To provide a uniform procedure for the administration of insolvent estates, and to ensure full reporting to creditors.” With the assignment of benefits, debtors and creditors do not need to resort to bankruptcy-and marijuana businesses do not need to get shut out of debt relief.

With the ABC, a financially distressed business or person makes an agreement with the “assignee”–some accountant or other disinterested entity. The assignee records the agreement in the official records, and then files a petition with the state court to transfer the assets of the financially distressed to the assignee. The assignee in turn distributes assets to creditors.

When we are talking about financial distress, nothing is all roses. Like bankruptcy, ABCs generally result in a loss of assets for the debtor. Further, the viability of ABCs may be threatened if creditors prefer the bankruptcy process. However, for those who deal with marijuana, ABCs are a promising way to recover from financial insolvency.

Attorney Jesse Haskins can help you decide if ABCs are best for you. Please click here to schedule a free call.

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