In a case of first impression, a bankruptcy court refused to allow an individual to receive bankruptcy relief because he was, and continued to be, employed by a cannabis business.1 The United States Bankruptcy Court for the District of Massachusetts (Central Division) recently dismissed the chapter 13 bankruptcy case of a debtor who proposed to use his wages from his employment at a marijuana dispensary to fund a chapter 13 plan of reorganization. Chapter 13 of the Bankruptcy Code enables individuals with income to develop a plan to use wages to repay creditors in installments over three to five years. In In re Blumsack, the debtor commenced a voluntary petition under chapter 13, listing his occupation as "Sales" at "Green Star Herbal," a retail cannabis dispensary. During the case, the debtor was a manager and supervisor of employees at TYCA Green, Inc. d/b/a/ Society Cannabis Co. ("TYCA Green"), a retailer, wholesaler, and producer of cannabis products. Following the line of bankruptcy cases that have denied access to federal bankruptcy courts for cannabis and most cannabis-related businesses, the Blumsack court applied the same reasoning to an individual who was not an owner of a cannabis business.

While Massachusetts state law permits the retail distribution of marijuana, marijuana is a Schedule 1 controlled substance under the federal Controlled Substance Act of 1970 (the CSA). Therefore, it is a federal crime to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense marijuana and to aid and abet the foregoing activities. The Trustee filed a motion objecting to confirmation of the proposed plan and seeking dismissal of the case because the debtor's activities in connection with his employment violate federal law. In opposing the Trustee's motion, the debtor noted that he was a mere employee with no ownership interest in a marijuana business. Trying to appeal to the court's equitable powers, the debtor also argued that Trustee's position would lead to vast denials of bankruptcy relief for individuals with employment or other relationships with cannabis-related activities which are currently permitted by state law.

The Bankruptcy Court held that the Debtor's employment at Green Star Herbal and continuing employment at TYCA Green required him to violate the CSA. In order to confirm a Chapter 13 plan, the court must find that the debtor filed the petition in good faith and, that the chapter 13 plan has been proposed in good faith and not by any means forbidden by law. Regardless of the debtor's subjective intent in filing the case, the Bankruptcy Court held that the plan could not be confirmed because the debtor did not file in good faith as the proposed plan would be funded by wages derived from federally illegal activities. This would also require the Trustee to knowingly administer wages derived from an active participant in a criminal enterprise. The Bankruptcy Court held that it would be an abuse of process to permit the debtor to obtain the protections and benefits of federal bankruptcy laws while continuing to commit federal crimes. Therefore, it dismissed the bankruptcy case and the individual could not receive a discharge of claims in bankruptcy.

The Bankruptcy Court seemed particularly troubled by the fact that the individual continued working in the cannabis industry while seeking federal bankruptcy relief and cautioned that the holding in the case was limited to the specific facts. This case fits the continuing trend of bankruptcy courts dismissing cases involving cannabis businesses. While bankruptcy courts have held that the "mere presence of marijuana near a bankruptcy case does not automatically prohibit a debtor from bankruptcy relief" and have left the door open to bankruptcy relief depending on how attenuated a debtor's business is to the cannabis industry,2 bankruptcy courts will still likely dismiss cannabis-related cases as a violation of federal criminal laws. Individuals working in the cannabis industry need to understand that their debt relief options are limited.


1. In re Blumsack, No. 21-40248-EDK, 2023 Bankr. LEXIS 108 (Bankr. D. Mass. Jan. 17, 2023).

2. Burton et al. v. Maney et al. (In re Burton), 610 B.R. 633 (9th B.A.P. January 2020).

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