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Federal court avoids deciding whether cannabis companies may be subject to federal receiver

A few weeks ago I wrote about a dispute brewing in federal district court in Arizona involving a marijuana industry credit card company.  The plaintiff in that case, a marijuana dispensary, brought an action against the credit card company and requested the appointment of a federal receiver over the defendant's assets.  Many people, including me, thought the Court would decline to appoint a federal receiver based upon the dearth of bankruptcy decisions holding that companies engaged in an illegal activity under federal law may not use the bankruptcy laws to protect them from creditors.  

The Court in this case did not need to decide whether a federal receiver was available in situations involving cannabis companies inasmuch as it found that a receivership was not warranted under the circumstances because the dispensary operator failed to meet its burden of proof regarding the imposition of this remedy.  So no decision on the availability of this remedy under federal receivership law. 

Cannabis receiverships are a novel issue for cannabis companies, which have virtually no bankruptcy protections due to federal illegality. Linx had argued that the court could not appoint a receiver to oversee its finances because doing so would compel both judge and receiver to violate federal law, but Tryke said that it would be prudent to make the appointment in part because Linx apparently owes debts to multiple unsecured creditors.

Tags

cannabis, federal court, marijuana, bankruptcy, restructuring & insolvency

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