Marijuana Debts Bankruptcy Discharge Colorado

Bankruptcy Won’t Send Marijuana Debts Up in Smoke

Marijuana Debts Bankruptcy Discharge ColoradoLast updated May 24, 2017.

In one form or another, marijuana is now legal in more states than ever before, which has led to boom times for growers and dispensaries.

But what happens when some of those pot dreams go bust?

Unfortunately, if you grow weed in the United States and run into financial issues with your business, bankruptcy will very likely not be an option.

Earlier this year, an official in the Justice Department said that people who are in the marijuana business can’t file for bankruptcy. In California and Colorado, small businesses and people who have been growing pot for profit have been kicked out of court during the bankruptcy process. As a bankruptcy trustee is put in charge of liquidating your assets under Chapter 7 bankruptcy or handling your payment plan under Chapter 13, it gets tricky because the selling of marijuana can become a crime — filing for bankruptcy is done in federal courts, and marijuana is still illegal under the federal Controlled Substances Act, after all.

“There’s this big disconnect between small businesses that profit in the marijuana industry and people who profit in the marijuana industry, what powers they have and whether or not they have any recourse,” says Katy Stech, a reporter who covers bankruptcy for the Wall Street Journal. “It’s particularly troubling because the marijuana industry, much like any startup industry, there’s a lot of turmoil. When any industry is trying to get its legs, there are a lot of companies that need to file for bankruptcy because of, you know, miscalculations, and things get rocky, so this is a particularly intense issue in some of those states.”

While anecdotally there have been more bankruptcy filings recently tied to the marijuana industry, a person doesn’t have to disclose why they are filing bankruptcy. They do, however, need to disclose their assets — such as equipment used to grow marijuana, or unsold marijuana plants.

Below, we’ll go over what states have marijuana laws on the books, and if you’re a grower, how you might be able to get help getting out of debt.

See also: How Many People Filed for Bankruptcy in 2016?

Where is marijuana legal?

Marijuana is the most commonly used illicit drug, with more than 22 million people using it in the past month. The U.S. Food and Drug Administration has approved THC-based medications for stimulating appetite in AIDS patients and for treating nausea in those undergoing chemotherapy as a cancer treatment. To be sure, it is a big business with a lot of potential. By 2021, the industry is expected to post $20.2 billion in sales.

While many states have decriminalized marijuana and more than half of the nation has made medical marijuana legal, here are the eight states (and Washington, D.C.) that have legalized recreational marijuana — and where you might see more attempts at bankruptcy filing by marijuana growers — as of May 2017:

Alaska

Marijuana use is legal for adults age 21 and older. Since 2015, residents have been able to use, possess, and transport up to an ounce of marijuana for recreational use. In early 2017, however, legal weed experienced a shortage — there wasn’t enough supply to keep up with demand, with only 26 growers operating statewide.

Read the law: Alaska Administrative Code Ch. 306

See also: Chapter 7 Bankruptcy in Alaska: What You Need to Know

California

Weed first became legal in California as medical marijuana in 1996. Now, you can carry up to 1 ounce for recreational purposes. In January 2018, the state will begin issuing licenses to dispensaries to allow them to sell non-medical marijuana.

Read the law: California Business and Professions Code Div. 10

See also: Chapter 7 Bankruptcy in California: What You Need to Know

Colorado

Recreational pot use became legal in Colorado in 2012; residents (and tourists) can buy up to 1 ounce of weed. Fun fact: In Colorado, pot stores and medical dispensaries outnumber local McDonald’s and Starbucks chains by nearly double.

Read the law: Colorado Retail Marijuana Code

See also: Chapter 7 Bankruptcy in Colorado: What You Need to Know

District of Columbia

People living in the nation’s capital can possess up to 2 ounces of marijuana and gift 1 ounce, so long as it’s an actual gift and no money, goods, or services are exchanged.

Read the law: DC Code § 48–904.01

Maine

Residents of Maine can possess 2.5 ounces of weed — twice the limit in most other states. Retail stores will open in 2018.

Read the law: Maine Revised Statutes Title 7, Ch. 417

Massachusetts

In Massachusetts, you can carry and consume small amounts of weed, as well as grow up to 12 plants in your home. Retail stores have a delayed opening of mid-2018.

Read the law: Mass. Gen. Laws Ch. 94C

See also: Chapter 7 Bankruptcy in Massachusetts: What You Need to Know

Nevada

Nevada residents can possess up to 1 ounce of pot but can’t grow it unless they live 25 miles outside the nearest dispensary. You also won’t see legal marijuana use in Las Vegas, however — dispensaries aren’t allowed anywhere near a casino. Taxation regulations should be implemented by the end of this year for a retail launch elsewhere in the state in 2018.

Read the law: Nevada Revised Statutes Ch. 453D

See also: Chapter 7 Bankruptcy in Nevada: What You Need to Know

Oregon

In Oregon, you can possess up to 1 ounce of weed and grow up to four plants at home. Edibles are legal as a gift if they are taken in private.

Read the law: Oregon Revised Statutes Ch. 475B

Washington

You can’t grow your own weed in Washington unless you’re using it for medicinal purposes. Otherwise, residents can carry up to 1 ounce of marijuana on their person.

Read the law: Revised Code of Washington 69.50.360

What should I do if I have marijuana assets?

Stech, the Wall Street Journal reporter, says bankruptcy experts she’s spoken to are saying there’s no recourse for a person in the business of growing and selling weed. She’s also seen similar problems with the banking industry, as bankers are hesitant to lend to people in the marijuana field. And Stech questions how far it may go: Using the example of a janitor who may work at a dispensary in Colorado and has run into problems paying his mortgage, it’s unclear whether that person would be able to use the bankruptcy system because their paycheck comes from the marijuana industry.

One actual story from Colorado to further consider:

In 2015, a Denver couple’s bankruptcy petition was denied because they grew pot and it would require a trustee handling their plants as assets. According to the judge’s ruling, the couple was “unfortunately caught between pursuing a business that the people of Colorado have declared to be legal and beneficial, but which the laws of the United States — laws that every United States judge swears to uphold — proscribe and subject to criminal sanction.”

The largest group of consumer bankruptcy lawyers, the National Association of Consumer Bankruptcy Attorneys, has criticized the Justice Department and its claim of who should have access to bankruptcy protection. And though it seems as if recreational marijuana growers have been targeted lately, those who grow for medicinal purposes, such as one Arizona dispensary that came under fire for defaulted loans by its creditors, also have run into trouble attempting a bankruptcy discharge.

Per the American Bankruptcy Institute, bankruptcy courts have consistently dismissed Chapter 7 cases involving marijuana under section 707(a) of the U.S. Bankruptcy Code, which allows them to dismiss for cause. They also use the common law doctrine of “unclean hands,” generally preventing both marijuana businesses and their creditors from seeking bankruptcy relief because of federal law.

Bottomline: Bankruptcy isn’t an option if you grow pot

If you grow marijuana legally, it will be incredibly difficult to file for bankruptcy. Simply put, as long as marijuana is still illegal under federal law, bankruptcy relief probably won’t be available to you. However, if you do try to file bankruptcy, it’s definitely something you shouldn’t handle alone. A qualified bankruptcy attorney would be able to guide you in this complicated process. Check out our member attorney database to find one near you.

3 replies
  1. Long Haul Thinker says:

    With Californians able to open dispensaries Jan 2018, I am sincerely hoping that the many Oregon horse barns that were converted to pot growing barns will go out of business, so horse people can get their boarding barns back. Trainers are leaving to other states, due to horses under training getting dangerous, locked in stalls with no more daily turnout – there are now horse LIVING in their former turnouts. Breeders can’t sell horses, as buyer have to back out when they can’t find a barn to board their horse at — all are full! It’s getting really desperate in Oregon right now for the horse industry. Is there a best and fastest way for interested parties to hurry and buy a barn back that is going under financially, due to pot growing? The possibility is very real that these barns might go under soon. Pot was $300/oz before it was legal. As it turned legal, it dove to $200/oz. Personal growers of a legal 4 plants each (just assume they are everywhere) are also selling their backyard weed to friends for only $50/oz, and not paying the 25% tax that the pot barns have to. The walls are vividly closing in, and it’s not cozy! How can we horse owners grease the skids to get our barns back and how can we finance the damage caused to these barns? The buildings tend to be more secure now, but auto water is now drip, lights have been lowered to easily reachable by horses, and entire manure piles shoveled BACK into the stalls (rubber mats removed, or buried) and also into the arenas — destroying the original drainage. Doors on stalls are broken or removed. Fencing is completely trashed. Trash, glass, and nails in turnouts. Don’t get me started on the bathrooms/office areas/trainer living quarters. It’s a MESS. Help!

  2. Long Haul Thinker says:

    2nd Topic — what can a landowner do when tenants try to grow their 4 pot plants? Can they do anything, other than ban all types of smoking, forcing them to make brownies only? Can landowners ban the 4 pot plants? Can landowners ban possession? If there are mixed over 21 and under 21, can the landowner ban all pot due to the presence of minors who they know are using? What about alcohol being passed to the minors?

  3. Long Haul Thinker says:

    3rd question — If you know for sure that a barn has been converted for pot, is there are way to find out if they took out a mortgage, and with who? I’ve heard that no one will give you a mortgage if it is for pot growing, and if they find out, they can call the debt instantly due.

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