ILLEGALITY OF MARIJUANA GROWING
Does This Prohibit The Debtor’s
Activities?
No, but the activities must be
outside of bankruptcy. As noted by the
Michigan Bankruptcy Court, “. . . under
these unusual circumstances, the
Debtor must make a choice. He can
either continue his medical marijuana
business or avail himself of the benefits
of the Bankruptcy Code, but not both.”1
What Happens To The Debtor Who
Wants To Continue The Business
And Stay In Bankruptcy?
This question was recently
proposed and delivered to the
Michigan Bankruptcy Court; and, it was
not a good result for the debtor. The
court simply stated that if the debtor
chooses to operate the business and
remain in bankruptcy, “ . . . the court
will require him to discontinue growing,
selling and transferring marijuana to
any and all patients and dispensaries
immediately and cease using property
of the estate to further his activity . .
.”2 Ultimately, that court issued an
injunction which required the following:
cease using his home for the growing
of the marijuana; cease using the
truck for the transfer of the marijuana;
cease using the horticultural equipment
for growing marijuana; compel the
estate to immediately abandon all of
the marijuana to end the violations;
order the debtor to destroy any
marijuana plants, by-products, or other
substances derived from the marijuana
in his control; and compel the debtor
appear at court within two weeks to
report that he has complied with the
same.
Of course, the alternative is
that the debtor, “. . . need only file a
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CONSUMER BANKRUPTCY JOURNAL
motion to dismiss this case under
section 1307(b) and the court’s
injunction will cease upon dismissal.”3
Is There A Constitutional Violation
Involved?
First, there is no constitutional
right to obtain a bankruptcy discharge.
United States v Kras, 409 U.S. 434,
446, 93 S Ct., 34 L. Ed. 2d 626 (1973).
Another losing proposition is to argue
that the Tenth Amendment has been
violated.
The Tenth Amendment
effectively says that any powers not
delegated to the United States by the
Constitution, nor prohibited by it to
the states, are reserved to the states
respectively, or to the people.4 The
statute in question, the CSA, has
been specifically reviewed under
Tenth Amendment analysis by the
United States Supreme Court.5 In
Gonzalez v Raich, the United States
Supreme Court ruled that the federal
government has the “ . . . power
to prohibit the local cultivation and
use of marijuana in compliance with
California law . . .”6 In short, the
Supreme Court has determined that
the CSA does not violate the Tenth
Amendment and
has specifically
stated that marijuana criminal laws
are not exclusive to the states.
illegal activity, even when such illegality
may not be enforced by any police
authority.8 Making federally illegal
activities synonymous to bad faith
is arguably an irrational conclusion,
but it is the present law. Until this
analogy ends, a plan’s funding, which
is derived from CSA-violative activity,
cannot be proposed in good faith.
Conclusion
State–licensed
marijuana
growers are incapable of confirming
plans in chapter 11 or chapter 13 if the
plan is primarily funded from activities
violating the CSA. Moreover, if the
debtor seeks to continue to receive the
protections of the federal automatic
stay, federal bankruptcy judges may
feel duty-bound to protect the federal
laws because they are judicial officers
who took an oath to uphold federal
law. In the recent ruling of Johnson,
the court went so far as to enjoin the
debtor, order the debtor to destroy his
plants, and compel the debtor to cease
using his growing personality unless
the debtor dismissed the case. To avoid
such a calamitous result, it is presently
advisable never to file reorganization
cases for marijuana growers if their
plan’s funding is primarily derived from
marijuana sales.
Is The Filing Of A Plan, Which
Violates CSA, In Bad Faith?
Sections 1123 and 1325
require a conjunctive: good faith and
legality. The plan must be proposed
in good faith and not by any means
forbidden by law.7 The published
decisions effectively rule that the plan
is not proposed in good faith when the
only method of funding is a derivative of
Spring 2016
National Association of Consumer Bankruptcy Attorneys