Warner Norcross + Judd attorney Robert Hendricks provided his insight on a Kalamazoo cannabis business’ bankruptcy filing in a MiBiz article titled “Kalamazoo cannabis Ch. 11 filing tests federal bankruptcy process.”
The article features a bankruptcy case involving Master Equity Group LLC, a company that on April 20 filed with the U.S. Bankruptcy Court in the Western District of Michigan under sub-chapter V of the federal bankruptcy code, a new but frequently used measure designed to expedite the bankruptcy process for small to mid-sized companies.
Master Equity buys or leases property to sublease to cannabis businesses along with providing accounting, payroll and other centralized functions. This case is different from most bankruptcy filings because Master Equity profits from its involvement indirectly from the production, marketing, sale and distribution of marijuana, which is still illegal at the federal level.
Marijuana is still listed as a Schedule I controlled substance under the Controlled Substances Act, and is therefore illegal at the federal level. United States Trustees, which are a party to all bankruptcy cases and serve as a watchdog for the system, generally do not allow businesses affiliated with cannabis to seek protection under the bankruptcy process. This could leave a lot of uncertainty for Master Equity as a result.
“The U.S. Trustee’s office has taken the position for several years now that it is illegal for the bankruptcy courts to administer cases that involve marijuana companies even if they’re legal under state laws,” said Robert Hendricks, Warner senior counsel and co-chair of the firm’s Cannabis Industry Group.
The scant legal precedent, paired with the U.S. Trustee’s vocal stance on the matter would suggest that trustees in the Western District of Michigan will likely file to dismiss the case, Hendricks said.
“They might have said, ‘We’re going to try to file bankruptcy and argue that, because we don’t touch the plan, we’re entitled to propose a plan,” Hendricks said. “Maybe they can convince a bankruptcy court to rule that way, maybe they can’t – who knows. A lot of other people have tried that and most of them have not been successful. But every court is different.”
The case could break new legal ground if it’s permitted to move forward, however.
Read the full article on MiBiz here.
Hendricks brings almost four decades of commercial law experience to a broad range of business types and owners that seek entity formation, real estate, tax planning, contracting and other assistance. Since 2013, he has also been cultivating both a state-level leadership role and a prominent practice in the area of legal cannabis commerce, which now comprises the majority of his practice. Hendricks represents growers, retailers, processors, labs and secure transporters who directly participate in marijuana enterprises in Michigan, as well as those businesses that provide ancillary goods and services to the industry. As new growth and distribution systems are established and continue to expand, Bob helps clients smoothly navigate the process in accordance with Michigan’s legal and regulatory framework. Learn more about his practice here.
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