Bankruptcy issues for New Mexico medical-marijuana businesses

Since 2007, New Mexico has allowed legal, regulated use of cannabis to treat certain medical conditions. As of October, the state was home to an average of about 44,000 active medical marijuana patients, with the highest numbers using it to alleviate the symptoms of post-traumatic stress disorder or PTSD and severe, chronic pain, with cancer a distant third, reports the New Mexico Department of Health.

Bernalillo County has by far the highest number of medical cannabis patients.

This successful program likely benefits many people and businesses financially, including those directly involved like approved manufacturers or producers, laboratories, couriers, application assistance firms and others. Still other people or organizations have financial stakes in the industry as secondary players like real estate brokers, landlords, equipment manufacturers, service providers like those for payroll or other administrative needs, utilities and more.

Federal bankruptcy limitations

According to a new article in Forbes, the U.S. Department of Justice or DOJ has again gone on record stating its position that marijuana businesses do not have the right to take advantage of federal bankruptcy relief. The article cites a high-level DOJ official as saying that because federal law classifies marijuana as a dangerous drug that “takes precedence over state laws to the contrary,” the federal bankruptcy system may not assist in “liquidating or restructuring any assets associated with cannabis.”

The United States Trustee Program or USTP takes the position that the bankruptcy system cannot be involved in “ongoing commission of a crime” and may not confirm a bankruptcy plan that allows business activity viewed as unlawful under federal law to continue.

Surprisingly, the officials view this prohibition very broadly to foreclose bankruptcy protection even for the holders of real estate leases for marijuana-related businesses or organizations, or for those involved with related investment activity.

Bankruptcy trustees are required to report any bankruptcy cases involving marijuana businesses, even those legally conducted under state laws.

Seek legal advice

It is important for any business involved with New Mexico medical marijuana, directly or indirectly, to talk to a bankruptcy attorney about the affect of this federal position on the ability to take advantage of bankruptcy rights. This area of law is complicated and likely to evolve and change, so up-to-date legal counsel can be crucial. If bankruptcy is not an option for a particular person or business, a lawyer can provide advice about other legal remedies for financial stress such as debt restructuring, refinance, renegotiation of contracts and others.