Court Holds That Bankruptcy and Marijuana Don’t Mix

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Are my 401k and IRA protected in bankruptcy?”


At its most basic level, the bankruptcy process exists so that if a company or individual finds itself upside down, owing more to creditors than can reasonably be repaid, there is hope. Hope that the debts can be eliminated or reduced. Hope that the company can be restructured. Hope of starting over fresh. Though this hope would seem to exist for any business owner in the U.S., a recent court decision out of Colorado made clear that this hope will not extend to marijuana-related businesses.


Burning Joint Charlotte Bankruptcy Law Firm Mecklenburg Debt LawyerThe interesting bankruptcy case, a Chapter 7 filing, was recently brought in the U.S. Bankruptcy Court for the District of Colorado in Denver. Frank Arenas and his wife Sarah filed the claim. The two are in many ways ordinary business owners who took on debt to start their business, watched as their business soured and found themselves unable to manage the increasingly massive debt load. In one way, the two stand out: their business is as marijuana wholesalers.


The Arenas’ started their business after doing so was legal in Colorado, never acting illegally. The problem is that though the Arenas’ are perfectly within the law in Colorado, bankruptcies are part of the federal court system. As such, bankruptcies are handled in accordance with federal, not state law. Anything marijuana related, specifically marijuana wholesaling, is illegal federally, a violation of the federal Controlled Substances Act.


Given that the services performed by the Arenas’ are considered criminal under federal law, the bankruptcy filing has been deemed ineligible. The Arenas’ were first tossed out of the district court, though the judge presiding over the case acknowledged the injustice, agreeing that the ruling would be “devastating” to the couple and their family. The Arenas’ did not give up, and recently lost an appeal before a trio of judges on the U.S. Bankruptcy Appellate Panel for the 10th Circuit. The panel wrote that because possessing, growing and dispensing marijuana and helping others do so is illegal under federal law, a debtor in the marijuana business cannot obtain relief in a federal bankruptcy court.


The Arenas’ aren’t giving up yet, moving forward yet again, this time with an appeal before the Tenth Circuit Court of Appeals. Currently their case has been stayed pending a decision by the 10th Circuit, a case many are anxiously watching as it will be the highest court in the country to have wrestled with such an issue.


The case obviously has important consequences for the Arenas’ who are unable to pay their debts and do not yet have any hope of getting out from under them. Beyond the Arenas’, the case will be important given the nationwide push to legalize marijuana that appears to be gathering steam. As more states legalize marijuana use, more companies will enter the industry, providing legal services in their states. However, like any industry, there will be winners and losers. Unlike other industries, current federal drug laws will ensure that the losers are trapped, unable to escape mounting debts. This presents an important problem not only for the states considering legalization, but for the bankruptcy courts that will be consigning those operating marijuana-related businesses to a kind of unending debt.


If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.






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