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Replies to post #90512 on Hemp Inc (HEMP)
05/24/18 11:05 PM
NEW YORK (The Deal) -- Common sense says that if you play by the rules in business, you'll be fine.
Pay your taxes, and you'll keep the Internal Revenue Service from knocking at your door. Don't drop any hints to shareholders about company plans, and you'll avoid following in Martha Stewart's footsteps. Restrain yourself from dipping into the company coffers to buy a speed boat, and it should be smooth sailing.
In short, do what you're supposed to, and the law will be on your side.
But what happens when you think you've been operating on the straight and narrow only to discover that there could be a very big difference between a state law and a federal one?
That's the predicament Frank and Sarah Arenas find themselves in. Frank, who operates a marijuana wholesaler -- legal under Colorado law -- is fighting the dismissal of his and his wife's Chapter 7 filing in the U.S. Bankruptcy Court for the District of Colorado in Denver, a result that even Judge Howard R. Tallman called "devastating" for the couple in his order throwing it out.
Because bankruptcy is a federal process, judges have ruled the violation of the federal Controlled Substances Act by distributing marijuana makes cannabis-related companies ineligible for bankruptcy. In the Arenases' case, a trio of bankruptcy justices -- Judges Tom R. Cornish, Robert E. Nugent and Dale L. Somers of the U.S. Bankruptcy Appellate Panel of the 10th Circuit in Denver -- underscored the point, asserting in an Aug. 21 opinion that "possessing, growing and dispensing marijuana and assisting others to do that are federal offenses. [...] Can a debtor in the marijuana business obtain relief in the federal bankruptcy court? No."
The Arenases aren't done yet, however. The appellate panel judges on Sept. 4 agreed to stay the dismissal of the Arenases' case while the couple appeals the decision to the Tenth Circuit Court of Appeals, making it the first time this debate will be considered at so high a judicial level.
The stakes for the Arenases are very real, of course. Their counsel, Daniel Garfield of Foster Graham Milstein & Calisher, said, "They simply can't afford to pay the claims against them."
But there's even more to it, given that marijuana-related businesses are sprouting up and gaining legitimacy nationwide. "At the most basic level, this is a legal business under state law, and they should be able to access the protection," Garfield said. "That's the main reason [they're pursuing this]."
Jurisdictional issues are not new to bankruptcy. The Federal Energy Regulatory Commission has clashed with bankruptcy courts when utility companies have been involved. Among the reasons that asbestos-related Chapter 11 filings are handled in the complex way they are is because of the involvement of the federal Environmental Protection Agency.
