Don’t punish Marijuana workers in bankruptcy proceedings
Bankruptcy Court Ruling Highlights Legal Gray Areas for Cannabis Industry Employees.
As the Biden administration drags its feet on bringing pot out of the legal shadows, employees of cannabis companies often find themselves stuck in legal gray areas, including in bankruptcy court.
The past few years weren’t the best of times for Scott Blumsack.
By 2021 when he filed for bankruptcy he had amassed more than $1 million in debt — including $459,000 in secured debt from several home mortgages and $557,000 in unsecured debt, including a $21,000 student loan.
The good news was that he was also by then gainfully employed as a budtender for Society Cannabis Co., a Clinton-based retailer, wholesaler, and producer of marijuana products.
He was soon promoted to manager of a dispensary, supervising 19 other employees. Blumsack proposed to use part of his $75,000 a year salary to help gradually pay off his debts, including paying those unsecured creditors $250 a month. His wife, an engineer, would also be contributing funds from her employment and a retirement account, he told the court.
What could possibly go wrong? Well, the bankruptcy trustee appointed by the court “alleged that the debtor, by virtue of his employment, was engaged in criminal activity proscribed by the Controlled Substances Act.”
A US Bankruptcy Appellate Panel ruled last month that indeed, proceeds from the state-authorized weed industry can’t legally be used to settle debts filed under a bankruptcy proceeding.
“[T]he nature of the debtor’s employment, by itself, does not render him ineligible to file a chapter 13 petition in good faith [but] his Plan would have funneled his income from the dispensary into the chapter 13 trustee’s office, and from there to creditors, bringing the proceeds of illegal activity directly into the administration of the bankruptcy case,” US Bankruptcy Court Judge Michael A. Fagone wrote for the three-judge panel.
Of course the “illegal activity” referred to in the decision is perfectly legal in Massachusetts. Heck, even the tens of thousands of people convicted of possessing pot in years past have now officially been pardoned by Governor Maura Healey after the Governor’s Council voted to give its approval to her plan last Wednesday.
The sale of medical or recreational marijuana or both is today legal in at least 38 states. But under federal law it remains a Schedule I drug under the federal Controlled Substance Act — along with heroin, LSD, and ecstasy.
“From the onset of this litigation, we wanted to shine a spotlight on the fact that over 22,000 Massachusetts cannabis industry employees, and almost half a million nationwide, had no assurances of being able to obtain debt relief via the bankruptcy courts,” Blumsack’s attorney, Dmitry Lev, said in a statement. “This was due to what Justice [Clarence] Thomas described as a ‘half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana’ which created a ‘contradictory and unstable state of affairs’ across the legal landscape.”
In fact, there was some good news out of the case, Lev noted, in the court acknowledging that cannabis funds could be “successfully segregated” during a bankruptcy proceeding rather than “categorically prohibiting individuals employed in the cannabis industry” from seeking relief.
“One can easily imagine a situation involving a debtor who needs the relief … and can fund a plan with money that was not derived from pre- or post-petition cannabis-related employment, even while that debtor continues working in the cannabis industry,” the decision notes.
Well, at least the door has opened a crack.
One solution would be for the US Drug Enforcement Administration to deschedule marijuana, as Senator Elizabeth Warren and several of her colleagues have urged.
“The DEA has never kept a drug in Schedule I after [the Department of Health and Human Services] recommended removing it, and it must not do so now,” Warren urged in a letter, also signed by 11 of her Senate colleagues.
“Marijuana’s placement in the [Controlled Substances Act] has had a devastating impact on our communities and is increasingly out of step with state law and public opinion,” it added.
But so far there’s been radio silence from the DEA, which is also considering the more modest step of rescheduling marijuana to Schedule III.
While it might not help Blumsack resolve his federal bankruptcy case, another useful step would be for Congress to pass the SAFER Banking Act, which would clear the way for legitimate cannabis enterprises to have access to financial services currently unavailable to them because of their illegal status at the federal level. That would mean access to loans, general banking services, including payment processing, and better access to mortgages for their employees, who too often have been denied financing because of the source of their income. The legislation, which this year was passed by the Senate Banking Committee with bipartisan support, would provide “safe harbor” — protections against civil, criminal, or administrative actions under federal law — for banks that take on cannabis-related business.
And though Senate majority leader Chuck Schumer has vowed action on the bill this year, passage in the Republican-dominated House remains problematic.
Some 53 percent of Americans live in a state where recreational marijuana is legal under state law, and a vast majority of states have legalized medical marijuana. This nation has already spoken on the issue. Only its federal institutions have failed to acknowledge that reality — and now too many people are being caught in that legal crossfire.
