Last 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.
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:
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
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
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
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
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
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
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
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
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.