Bankruptcy Options for Cannabis Companies

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An increasing number of states are moving forward with legalizing cannabis in some fashion. In Michigan, and in many other states, it is legal for most adults over the age of 21 to partake in medical and recreational marijuana.

As such, an entire cannabis industry in Michigan has popped up over the last few years to meet the immense demand of consumers. The state has created an in-depth licensing system to ensure that all direct and ancillary businesses in the industry are up to the proper standards and operating legally.

While cannabis is a growing industry that has just begun to realize its full potential, not all cannabis-related businesses are going to be successful. Unfortunately, due to clashing laws, cannabis companies don’t enjoy the same federal protections as other industries in times of need.

One of the main areas where cannabis businesses don’t enjoy protections from the law are when they are struggling financially. Cannabis companies don’t enjoy the same bankruptcy protections as businesses in other industries.

So, what are the options for cannabis companies if they are facing financial hardship? We’ll detail those options — as well as how this could change in the future.

Why Cannabis Companies Can’t File for Bankruptcy

 

If cannabis companies are legally allowed to operate in Michigan and some other states, why are they not allowed to file for bankruptcy? The reason is quite simple, really: Marijuana is illegal in all forms at the federal level, and bankruptcy protection is provided by the federal government.

When a company files for bankruptcy, they will do so under the rules set forth by the United States Bankruptcy Code in a U.S. bankruptcy court. These protections are only provided to companies that are operating legally.

Since cannabis is illegal in all forms federally, any company in the cannabis industry is not afforded typical protections under U.S. Bankruptcy Code — since they are technically operating illegally according to federal law. This goes not just for companies directly in the industry, but could also apply to ancillary companies that provide some services to cannabis companies.

This doesn’t mean that these companies are going to be prosecuted by the federal government, and it is highly unlikely that the federal government is going to shut down a cannabis company’s operations as long as they are abiding by their state’s rules and aren’t doing any interstate commerce. But, it also means the federal government isn’t going to go out of its way to provide these companies with federal protections such as bankruptcy.

Bankruptcy Alternatives to Cannabis Companies

 

Typical business bankruptcy proceedings would include a reorganization or official action to sell off the company’s assets to meet the business’ debt obligations. This would be done under a direct order from the bankruptcy court, which would lead the process so there is no concern about which creditors are prioritized over others, and which assets must be sold.

Some businesses are even able to use bankruptcy protection to restructure their debt so that they can emerge from bankruptcy as a solvent company that can continue to operate.

Without this official and straightforward process available to them, though, cannabis companies must seek out alternatives if they are in a tough financial position.

There are two main options cannabis companies will have in these situations. 

ABC

The first option is called an ABC, or assignment for the benefit of creditors. This is available to cannabis companies in many instances, because ABC is a process that operates under state law. As such, each state will have its own rules and regulations for how this can be used.

The process is very similar to how Chapter 7 bankruptcy works. State law will dictate how the cannabis company’s assets will be liquidated. All of these assets will be assigned to a person known as an assignee. This person will then oversee the entire liquidation of all the assets as well as how the proceeds from this liquidation are distributed to the company’s various creditors. 

The positive to ABC is that it can actually be completed much quicker and for far less money than a typical bankruptcy proceeding.

Workout Agreement

If the ABC effort doesn’t work, or if there are hiccups in the process, then another option would be for the cannabis company to directly negotiate with their creditors. This is referred to as a “workout agreement,” since the two sides will “work out” the conditions or terms of settling the outstanding debt.

While some creditors may be willing to work with the cannabis company to work out repayment arrangements, others may not. One of the main reasons for this is that the cannabis company doesn’t have a lot of leverage in this case, since they can’t use the threat of bankruptcy.

That being said, a creditor may be willing to negotiate arrangements with a failing cannabis company because the alternative might be to file a civil suit. Those lawsuits can be time-consuming and expensive, and might not lead to much in the end.

Could Bankruptcy Law Change?

With more and more cannabis businesses popping up throughout the country, it’s possible that bankruptcy laws could ultimately change so that cannabis companies could receive some protection. 

In fact, a Michigan-based cannabis company tried to challenge its Chapter 7 bankruptcy filing, which was dismissed in part because federal law considered the business to be illegal.

The company appealed the decision to federal district court, but they were not successful in their arguments. In making its ruling in the case, the federal court said that bankruptcy isn’t available for any company that has assets “that are used for, or generated by, a business prohibited under the CSA [Controlled Substances Act].” 

Since marijuana is prohibited under the CSA, then, any business dealing in marijuana is ruled to be ineligible for bankruptcy protections.

There is a possibility that this could change in the future, though. Some members of Congress have considered proposing legislation that would at least decriminalize recreational marijuana, while others have suggested making recreational use legal — as many states have.

Until this happens, though, it’s very likely that cannabis companies that are in financial trouble will have to seek alternatives to bankruptcy.

 

Can You Smoke Weed in Public in Michigan?

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Michigan is one of the states in America where it is legal to use marijuana both for medical and recreational purposes. It was actually the first state in the Midwest to legalize marijuana on a recreational basis back in 2018, which allowed adults who are over the age of 21 to use weed for non-medical purposes.

That being said, there are some limitations as to how much weed one can possess legally in the state, as well as limitations on where weed can be smoked. It’s very important that you follow these laws, as breaking them can get you into legal trouble even though Michigan legalized recreational marijuana usage.

Below are some more details about the restrictions surrounding marijuana usage in Michigan, and where you can and can’t smoke it in public.

Who Can Possess Marijuana in Michigan?

 

Michigan law restricts the purchase and possession of recreational marijuana to adults over the age of 21. There are some restrictions to this that bar certain individuals from purchasing, possessing or using marijuana.

As long as you meet the requirements, though, you will be allowed to possess weed in Michigan.

How Much Weed Can You Possess?

 

According to state laws, individuals are allowed to possess as much as 10 ounces of marijuana while they are at their home. This includes both inside their home as well as on the property surrounding it. 

If you are outside of your home, Michigan law states you can possess up to 2.5 ounces of weed. This allows you to travel with weed to another location in the state, or to purchase it from a dispensary and then bring it to your home, for example.

There are some places where it is completely illegal to possess any amount of weed. This includes on the property of any prison, jail or K-12 school.

Can You Grow Your Own Weed?

Yes. If you are at least 21 years of age, you’re allowed to cultivate as many as 12 cannabis plants at your home, assuming you meet all the requirements of doing so.

These plants must be grown only for personal use, and they can’t be placed anywhere that can be seen by the public. In other words, they shouldn’t be placed in a window or near a window where the plants could be viewed if blinds or curtains were drawn.

One important aspect of this is that the weed plants you grow have to be for your own use. You can’t produce or sell the cannabis products you make from your own weed plants, unless you have a special license to do so.

Only microbusinesses, retailers or provisioning centers with the proper licenses are allowed to sell weed products in Michigan.

What Can You Buy and Where Can You Buy It?

Along these lines, it’s important to understand where you can purchase marijuana legally in Michigan as well as what types of products you’re allowed to purchase. In Michigan, you can only purchase recreational marijuana at licensed provisioning centers and retail outlets also referred to as dispensaries.

You should easily be able to find a list of fully licensed and regulated dispensaries by searching online. 

In terms of what you can buy, you will have quite the choice of products at most dispensaries. This includes weed that you can smoke, as well as other infused products such as edibles that come in the form of chocolate, gummies, concentrates and mints.

There are also plenty of different vape products that you can purchase. While the state temporarily halted the sale of vape products containing marijuana back in 2019, that ban has been lifted.

At most of these dispensaries, you can also purchase a number of different accessories to enhance the consumption method while you’re using.

Just keep in mind that you are only allowed to legally possess 2.5 ounces of weed outside of your home. This includes when you are transporting any products you legally purchased from a dispensary to your home. So, you may want to limit your purchase to this amount just to be safe.

Can You Smoke Weed in Public in Michigan?

Just because recreational weed is legal in Michigan doesn’t mean that you can use it anywhere. In many regards, this is very similar to the consumption of alcohol. Most adults over the age of 21 can legally purchase alcohol in Michigan, but they can’t drink a beer anywhere they want in public. The same goes for marijuana whether medical or recreational

Michigan state law says that you’re allowed to use weed in your home. You can also use it in someone else’s home as long as the property owner, landlord or occupant gives you permission to do so. 

This means that if you are renting your home, your landlord does have the right to ban you from smoking marijuana in it, even if you are of legal age to do so. A landlord can’t, however, ban you from using weed in other forms, such as edibles or concentrates. A landlord can ban smoking in all forms even for tobacco, for instance, but can’t ban your use or non-smokable weed or alcohol. 

All outdoors consumption of marijuana, in any form, is illegal. While you likely won’t get in trouble for smoking weed in your own backyard, you certainly can get in trouble for doing so in a public place such as on the street or in a park, or even in your vehicle. 

The only exception to this law is if you are consuming weed at a location that has a social consumption license. These Designated Consumption Establishments allow people to use weed while they are on their premises, as a social activity.

 

What Happens if TSA Finds Cannabis in Checked Luggage?

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     Marijuana is more socially acceptable throughout the country. Some states such as Michigan have even legalized the practice of growing, selling and using cannabis on a medical and/or recreational basis.

For those who are interested in partaking in marijuana in one way or another, this is really good news. At the same time, differing laws can create a lot of confusion, especially when someone is traveling across state lines.

One of the most common questions that’s asked in terms of traveling with cannabis is whether you are allowed to carry it in your checked luggage. Below, we’ll address what happens if TSA finds cannabis in your checked luggage.

Does TSA Check for Cannabis in Luggage?

According to the TSA, security officers won’t be actively searching for marijuana or any other illegal drugs. Instead, they are focused on finding anything in luggage that could be a threat to passengers and aviation as a whole.

It’s obviously possible, though, that TSA security officers may end up finding cannabis products in your checked luggage. So, what happens in this instance?

The TSA says that if security agents find cannabis during a security check, they are required to report it to local law enforcement officials — depending on what state the airport is located in.

If the airport is located in a state where marijuana is legal, for example, then the TSA security agent may just confiscate the cannabis in your luggage, unless you are trying to transport a very large amount of it.

On the other hand, if the airport is located in a state where marijuana is still completely illegal, then you will likely be turned over to law enforcement officers for a possible fine and/or other criminal action.

How Can TSA Officers Find Cannabis in Luggage?

A question you might have is how would a TSA security officer find cannabis in your luggage if they aren’t actively searching for it? There are a few ways that they might come across it, actually. Here are some of the main ways it could happen

Random Searches

TSA security officers will perform random searches of about 10% of all checked bags, by policy. When they do this, they will open a passenger’s luggage and conduct a physical inspection of the contents inside. If you are one of the unlucky ones to have your luggage randomly inspected, TSA officers will find your cannabis if you have any inside.

Airport Scanners

While cannabis does appear on airport scanners, it doesn’t appear as a clear picture of what it is. When luggage goes through an airport scanner, the contents inside either appear blue/black, green or orange.

Blue/black represents any hard plastic. Green represents any non-organic material. And orange represents organic material. 

Since cannabis is organic material, it will appear orange in an airport scanner. But, if TSA security officers aren’t specifically looking for cannabis, why would they open a person’s checked luggage if they see an orange item?

The answer is because explosivesbecause that explosives would also appear orange through an airport scanner, since they are composed partially of some organic materials. 

In other words, if a TSA security agent sees orange pop up in your luggage, they may be opening it to search for explosives, only to find that what’s inside is cannabis.

What About Medical Marijuana?

Another common question is whether it’s legal to carry cannabis in your checked luggage if you have a medical marijuana card. The answer, unfortunately, is that this is irrelevant from the TSA’s perspective.

The reason is because cannabis in all forms — whether for medical or recreational use — is still considered completely illegal. And since the TSA is a federal agency, it operates by federal law.

Therefore, showing your medical marijuana card to a TSA security agent who finds your medical marijuana won’t change what they do after they find cannabis in your checked luggage. They are still required by federal law to report you to local law enforcement officials.

As mentioned above, though, the one exception to this is if the airport is located in a state where medical marijuana is legal. If it is, then your cannabis may just be confiscated instead of being turned over to law enforcement.

What if I’m Traveling to and from States Where It’s Legal?

The same reasoning for medical marijuana applies in the case of flying from one state where cannabis is legal to another state where it’s also legal. Even if the two states have the exact same laws, flying with cannabis in your checked luggage is not legal from the TSA’s perspective — because all marijuana is considered illegal from a federal standpoint.

Are There Any Exceptions at All?

With all of the above in mind, it is important to note that you can fly with certain cannabis products in your checked luggage. What determines whether it’s legal or not is what the cannabis product is made of.

TSA states that some cannabis-infused products are completely legal to fly with. In order for the cannabis product to meet the legal criteria, according to the TSA, it must not contain more than 0.3% THC on a dry weight basis. Or, it must be approved for use by the FDA.

This means that some cannabis-infused products are completely legal to put in your checked luggage. Most of these products are Cannabidiol that are derived from hemp and not marijuana — though there are some from the latter source.

If you want to fly with this type of product, it is very important that you store the product in its original packaging, and that it clearly states the level of THC that it contains. These are similar instructions you would want to follow if you were flying with prescription medications — which should be kept in their original packaging that shows you are the one who they were prescribed to. 

You don’t want TSA security officers to have to make a determination as to whether your cannabis-infused product meets the criteria for exception. In almost every case, they will err on the side of caution and either confiscate your cannabis and/or turn you over to local law enforcement authorities.



TSA Guidelines for Cannabis 2022

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Many states throughout the country have legalized cannabis in some form. Some states have legalized it only for approved medical use. Others have legalized it for adult recreational usage as well. Others have done neither, and still consider its usage to be illegal in all forms.

These different rules in regard to cannabis usage can make traveling across state lines quite complicated and confusing if you want to travel with cannabis on you.

If you plan to fly with cannabis, it’s important that you understand the rules laid out by the Transportation Security Administration. The TSA sets the rules for what is and what is not allowed on all planes in the United States, and these rules must be followed by everyone who wishes to fly — regardless of what state they are coming from or going to.

Below is a detailed look at TSA guidelines for cannabis in 2022.

The Challenge with Conflicting Laws

The biggest challenge in understanding the rules regarding cannabis when you’re traveling is that there are three different set of laws at play:

  • The laws of the state you’re flying from
  • The laws of the state you’re flying to
  • Federal laws

As mentioned before, different states have different rules for how they handle cannabis, in both medical and recreational form. What’s legal in one state may not be legal in another.

In Michigan, for example, both medical marijuana and adult recreational marijuana are legalis legal. By contrast, all forms of marijuana are illegal in Kansas. This means that if you are found to possess marijuana in Kansas, you could be held accountable to the state’s laws, even if you are a resident of Michigan and purchased it there legally.

In addition, marijuana is considered completely illegal from a federal standpoint. Federal law enforcement agencies are highly unlikely to intervene on individual state laws regarding marijuana, but they may when someone carries marijuana across state lines — in certain situations.

Can You Fly in the U.S. with Marijuana?

The quick answer to this question is a simple “no.” The more in-depth answer to this question is a more complicated “it depends.”

Let’s dive further into these two possible answers.

The Simple No

The simple “no” answer is because, as mentioned previously, marijuana in all forms is considered illegal by federal law. And since the TSA is a federal agency, federal law supersedes state law within an airport and on airplanes.

As such, the TSA does not officially allow marijuana to be taken into airports or on airplanes. If they find it, they will, in some cases, refer you to law enforcement agencies. Those agencies may or may not pursue official criminal charges, but you can bet that whatever marijuana you had with you will be confiscated. 

It Depends

The more complicated “it depends” answer is based around two factors. The first is the official policies of the TSA. As stated in their official guidelines regarding marijuana:

“TSA’s screening procedures are focused on security and are designed to detect potential threats to aviation and passengers. Accordingly, TSA security officers do not search for marijuana or other illegal drugs …”

If you combine that statement with the description above, it means that the TSA won’t specifically be searching to see if people are carrying marijuana with them into airports … but if they happen to find it during a security search, they may report it to law enforcement agencies.

The second factor is what the specific cannabis product in question is. While marijuana and some products that are infused with cannabis are considered illegal by federal law, there are some exceptions to that.

According to the TSA, “products that contain no more than 0.3 percent THC on a dry weight basis or that are approved by FDA” are allowed to be taken into airports and on airplanes. This provides some wiggle room for certain products to be taken past TSA legally.

What Products Fit into This Description?

While most medical marijuana — and certainly all recreational usage marijuana — wouldn’t fit into the TSA’s description of legal products, what would are most CBD products. 

CBD is mainly derived from either hemp or marijuana. Almost all that are derived from hemp contain less than 0.3% THC. Even some that are derived from marijuana contain less than that amount, making them legal by TSA’s standards.

This means that CBD products in any form — whether it be oil, edibles or other products — would be allowed to be taken into an airport and on a plane as long as it contained less than 0.3% THC. An important thing to keep in mind, though, is that the onus will be on you to prove that the product you are carrying with you meets that criteria.

As such, it’s always advisable to bring your CBD product in its original packaging. Make sure the packaging clearly states what it is and what the ingredients are — especially the percentage of THC that it contains, if any at all.

In essence, these are the same rules you would want to follow if you had prescription medication that you wanted to fly with. It should be kept in its original packaging that has the original prescription written on it.

This proves what the prescription is, the fact that it’s legal, and the fact that you are the one who’s legally allowed to possess it. If you dump your prescription medication into a plastic bag, for instance, you leave it up to a TSA agent to trust what you say about the medication.

The same goes for CBD products. You don’t want to leave it up to chance whether you’ll be allowed to carry your CBD products with you through an airport and onto a plane.

While having your products confiscated may not be that big of a deal, having to deal with the potential hassle of legal questions likely would be.