The federal bankruptcy process, or even the looming threat of a bankruptcy, can be of enormous utility to a struggling business. In addition to the ability to restructure debt, the bankruptcy process affords businesses certain legal rights and protections that can be invaluable in securing sufficient time to attempt to turn things around or conduct an orderly liquidation of their assets. Because the process can be expensive and often time consuming, creditors are incentivized to attempt to come to an amicable resolution of their claims in order to avoid a filing.

Unfortunately, these valuable benefits are not available to cannabis enterprises. The classification of marijuana as a Schedule 1 drug under the Controlled Substances Act renders the cultivation, sale or use of marijuana for any purpose a crime. See 21 U.S.C. Sections 802, 813 (definitions of “controlled substance” and schedules). Further, enterprises that knowingly “aid and abet” the commission of a crime are also at risk of being prosecuted for conducting criminal activity. See 21 U.S.C. Section 841(h)(1)(B) (aiding or abetting distribution or manufacture under the CSA). They may also find themselves unable to access the federal bankruptcy laws to assist them in a restructuring or liquidation. Because the Bankruptcy Code is a federal statute, it is unavailable to enterprises that derive their revenues from activities that are in violation of federal law. Many cannabis companies—including some of the largest players—have recently begun showing signs of financial distress. Most, if not all, states have statutes that are available to companies or creditors of companies that are insolvent. This article deals with the following legal conundrum: with the most powerful avenue of relief closed to them, what is a financially distressed Pennsylvania cannabis company to do?