Lenders in many industries are often impeded in enforcement efforts by a borrower’s bankruptcy filing, but not so in the cannabis space. As a consequence of the federal government’s continued criminalization of cannabis, protection under the U.S. Bankruptcy Code is likely out of reach for marijuana-related businesses, or MRBs.
In fact, bankruptcy courts tend to dismiss cases where any proposed plan would be funded by money received from MRBs. As a result, struggling MRBs, as well as their lenders and other creditors, must turn to state alternatives.
Lenders must therefore stay acutely aware of enforcement procedures under these state law alternatives, set realistic expectations, and draft their agreements to maximize potential recoveries.