Court Denies Bankruptcy Protections for Marijuana Businesses

Posted on October 14, 2015 at 12:00pm by
The benefits of filing for bankruptcy after job loss.

In 2012, Colorado legalized the recreational use and sale of marijuana, defying federal laws that prohibit the substance. After legalization went into effect, marijuana shops opened throughout Colorado. Marijuana businesses raked in a combined $700 million in sales last year and some analysts expect this number to climb to $1 billion by 2016.

However, while marijuana shops are considered businesses in Colorado, the federal government does not recognize them as such. Marijuana is still considered a Schedule 1 substance by the federal government. This means that many of the same protections offered to businesses around the country are not offered to marijuana shop owners.

A Colorado couple who owns a marijuana business is in a difficult situation after filing for Chapter 7 bankruptcy. The U.S. Bankruptcy Court for the District of Colorado tossed the couple’s case, as bankruptcy is a federal process and the federal government has scheduled marijuana as illegal. Any debts incurred by the business owners cannot be discharged, which could have devastating consequences for years to come. The couple plans to appeal the decision.

Federal Laws Create Huge Financial Risks for Marijuana Shop Owners

Most banks will not lend to marijuana businesses, but local institutions that do offer financing charge interest rates as high as 20 percent. Marijuana shop owners that take on these loans are risking financial devastation should their businesses fail.

As of 2015, Alaska, Oregon, Colorado, Washington and the District of Columbia have legalized the purchase of marijuana. Business owners in these states should be wary of taking on risky loans, as they will not be afforded the same bankruptcy protections as other industries.

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