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Justice Department Watchdog Claims Marijuana Businesses Can’t File for Bankruptcy

A Justice Department bankruptcy bureaucrat sent out a letter reminding consumer bankruptcy handlers not to deal with any cannabis industry cash.

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Although more than half of the states in the U.S. have legalized cannabis on a medical or recreational level, the industry itself has failed to legitimize itself due to ongoing federal illegality. One of the most glaring issues stems from the inability to use banking services, forcing marijuana business owners to deal in cash only. 

Now, a Justice Department bankruptcy watchdog is reminding the industry that this financial forbiddance also extends to companies facing financial trouble. Last Wednesday, U.S. Trustee Program director Cliff White sent a letter to those who handle consumer bankruptcy cases, stating that cannabis is still federally illegal and warning them not to handle any money from the sale of marijuana-related products.

White’s division oversees trustees who handle personal and corporate bankruptcy filings, essentially responsible for taking debt payments from bankrupt people. He claims that there’s been an increase in “marijuana assets” disclosed in these filings, and has warned fellow trustees not to go against the grain of federal law. 

According to White, this notice “pertains even in cases in which such assets are not illegal under state law,” and has even led to several bankruptcy courts dismissing marijuana growers from court. But some consumer bankruptcy lawyers have come out to criticize the Justice Department's stance. 

Ed Boltz, a lawyer who monitors federal policy for the National Association of Consumer Bankruptcy Attorneys, argued that White’s division doesn't have the authority to forbid dealing with cannabis-related bankruptcy, and thus shouldn’t be able to decide who should have access to this protection. 

But even in states where the marijuana market is booming, such as Colorado, judges have had no issue dismissing these types of cases. For instance, In 2015, growers in Denver filed for bankruptcy, but the federal panel of judges denied their request. The reason given was that the case could require a trustee to handle and sell their marijuana assets.

All in all, the Justice Department letter follows suit with the muddled stance taken by Attorney General Jeff Sessions. The Trump administration has yet to present a concise plan on how they plan to deal with marijuana use. Still, they have made one thing clear, they don’t intend to make things any easier for this budding cannabis market, whether the business in question is thriving or is in need of financial assistance.