Prior to coming back to a law firm, I worked for a long time as counsel to Chicago-based investor, Sam Zell, at his personal investment firm. Sam is a legendary investor, and in my time there, we worked on a plethora of “hairy deals” as we called them - complex, often distressed, and always challenging. I still keep an eye on what Sam is doing and saying, so I got excited when he was interviewed by Bloomberg News on Tuesday. (link) This statement of his particularly struck me:

“Bankruptcies are what you need to clear markets and what you need to end recessions and dips,” Zell said. “The fact that there’s a lot more distressed players today will help clear the market, but it also means that there aren’t anywhere near as many opportunities as there were in the past.”

What Sam is saying is that bankruptcy is a key tool for industries to work through economic cycles. Among other things (and I’m very much generalizing here), it allows companies to renegotiate debts and right-size capital structures, or provide an orderly sale of the business shed of many burdensome liabilities, while keeping creditor lawsuits at bay (bankruptcy laws “stay” pending lawsuits). But, as we all know, non-hemp cannabis (and ancillary) businesses can’t use this tool (link), and state offerings such as receivership and assignment for the benefit of creditors simply don’t offer an equivalent (or, frankly, useful) solution to either debtors or creditors.

In other words, without bankruptcy, the non-hemp cannabis industry does not have an efficient or productive way to “clear” the market. Without a change to the U.S. Bankruptcy Code, or a radically different interpretation of the existing Code by U.S. Bankruptcy Courts, for non-hemp cannabis, Sam’s words of wisdom are, unfortunately, like dust in the wind.