Massachusetts marijuana worker denied Chapter 13 bankruptcy protection
- An employee of a marijuana company in Massachusetts was denied bankruptcy protections due to federal regulations.
- The employee was disqualified from Chapter 13 protection because his plan involved using income from a cannabis store.
- The ruling was based on the connection between the employee's proposed reorganization funding and his involvement in illegal activity.
- While Canada allows creditor protection for cannabis companies, struggling American marijuana companies have been resorting to receiverships to repay debtors.
A marijuana company employee in Massachusetts has been denied bankruptcy protections, highlighting a federal barrier that extends beyond the corporate realm to personal finances.
A U.S. Bankruptcy Appellate Panel ruled that Scott Blumsack, a full-time employee at marijuana wholesaler Society Cannabis Co., was prohibited from accessing Chapter 13 protection, according to Rhode Island Lawyers Weekly.
While the nature of Blumsack’s employment alone failed to disqualify eligibility, he lost his bid because of his plan to channel income from a cannabis store into a Chapter 13 trustee’s office and then to creditors, U.S. Bankruptcy Court Judge Michael Fagone ruled.
“Where the debtor proposed to fund his reorganization with the proceeds of illegal activity, the degree of connection between that criminal activity and the debtor’s reorganization efforts crossed a line into bad faith territory,” the judge wrote, according to the legal publication.
This ruling aligns with years of precedent hinging on marijuana’s federal prohibition, though most bankruptcy claims have been on the corporate side, not personal.
Canada, conversely, allows creditor protection for cannabis companies under the nation’s Companies’ Creditors Arrangement Act.
Meanwhile, struggling American marijuana companies have been turning to receiverships as a last-ditch effort to repay debtors.
The meteoric fall of California marijuana distributor Herbl and its ensuing receivership, chronicled by MJBizDaily in early March, is the latest high-profile example.