Cannabis Rescheduling Will Not Open Bankruptcy Doors

As previously discussed by Foley Hoag's attorneys in its Cannabis practice, a rescheduling of cannabis from a Schedule I Controlled Substance to a Schedule III Controlled Substance will provide cannabis businesses with the ability to claim tax deductions and a host of other potential benefits, but it most likely will not open the courthouse doors for federal bankruptcy protection absent participation in other regulatory regimes like DEA registration.

Currently, courts have held that a bankruptcy case must be dismissed if the continuation of the case would require the court, trustee, or debtor-in-possession to administer assets that are illegal under the Controlled Substances Act ("CSA") or that constitute proceeds of activity criminalized by the CSA, even if the assets were lawfully acquired under state law. As such, it is the United States Trustee Program's policy as the watchdog of the bankruptcy system to move to dismiss marijuana-related bankruptcy filings to