‘Essential’ designation does not help cannabis companies’ bankruptcy cases

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Federal bankruptcy protections remain unavailable for marijuana companies, even though the medical cannabis industry has been deemed “essential” during the COVID-19 pandemic by every state that has a functional MMJ program.

According to The Wall Street Journal, the U.S. Department of Justice continues to argue in court against extending bankruptcy protections for marijuana companies, and there’s no solution on the horizon unless Congress acts to remedy the situation.

At issue is a longstanding Justice Department policy that bankruptcy can’t be used to protect federally illegal businesses, including state-approved marijuana companies, a DOJ spokesperson told the Journal.

Although the DOJ’s policy forbidding bankruptcy protections for marijuana businesses has been in place since 2017 and was an industry problem for years even before that, the coronavirus crisis has brought the issue back to the fore with multiple cases having been fought out in court, the Journal reported:

  • A Pennsylvania couple were recently denied Chapter 13 protections because the wife works for a cannabis cultivation operation owned by Illinois-based Cresco Labs.
  • A Denver judge in March ruled in favor of the DOJ in a case that dealt with a woman’s investment in a marijuana company.