Marijuana (“MJ”), for both medicinal and recreational use, is legal in nine states and Washington, D.C. However, states legalization of marijuana directly conflicts with federal law. (Federal law still places MJ in the same category as heroin.) So, based on the supremacy clause, MJ is still illegal federally, and the US Government could legally shut down all MJ dispensaries and prosecute all participants in the fledgling MJ industry. Also, a bankruptcy Judge ruled, that merely accepting money from a state MJ dispensary, violated federal controlled substances law. Therefore, a landlord/creditor who received money from a marijuana dispensary would not be allowed a discharge.
The above decision was appealed, where it was ruled:
In a unanimous opinion, the Ninth Circuit Bankruptcy Appellate Panel reversed and remanded the lower court’s decision, finding that the bankruptcy judge had not made adequate findings of fact and stated legal conclusions indicating the grounds for dismissal.
In a noteworthy concurring opinion, Judge Maureen A. Tighe emphasized the importance of determining whether the debtor was actually violating the Controlled Substances Act. As Judge Tighe found, the debtor’s plan did not necessarily require rental income from the dispensary to fund the payments – instead, the debtor’s sale of the property would have funded the payments. Read more…
Please note, that the above result only sent the case back for reconsideration by the lower court. So, the Debtor’s discharge still may be discharged.
This case is though is compelling in many ways. First of all, this matter emphasizes that bankruptcy is a federal matter and that, above all, federal law prevails over state law. Additionally, the ruling also was limited in that it was implied that the only reason that one judge ordered that the case is remanded was that the Debtor would be selling the office building and not use the funds from the dispenser to pay off her chapter 13 plan payments.