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Tangential Marijuana Connection May Pose a Bankruptcy Problem

March 29, 2019

 

 

A Colorado bankruptcy court judge threw out two debtors’ chapter 11 cases because of marijuana connections; the debtors manufacture gardening equipment.  The judge relied upon §843(a)(7) of the Controlled Substances Act which makes it a crime to sell equipment “knowing, intending, or having reasonable cause to believe, that it will be used to manufacture a controlled substance…”  The debtors argue that the judge interpreted this section of the CSA much too broadly and that there needed to be evidence “of the specific time, location, and circumstances of the alleged violation." 

 

 

This kind of broad interpretation has potentially significant ramifications in states where marijuana is legal under state law, such as Massachusetts.  Hardware stores, horticultural nurseries, farming equipment distributors and many other businesses who are even tangentially related to the marijuana industry may be implicated and thus barred from reorganization under chapter 11.

 

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