In the wake of the COVID-19 pandemic, many prognosticators are forecasting a potentially substantial increase in bankruptcy filings across a myriad of industries. Under current law and policy, however, bankruptcy is likely not an option for companies within the steadily expanding cannabis industry. This is because cannabis products with a THC concentration exceeding 0.3% on a dry weight basis remain a Schedule I substance in the federal Controlled Substances Act (products with a THC concentration of 0.3% or below are classified as “hemp” and were removed from the Controlled Substances Act by the 2018 Farm Bill). Bankruptcy is also a creature of federal law, and thus allowing cannabis businesses to seek bankruptcy relief would put federal courts and bankruptcy trustees in the precarious position of having to administer assets that although legal within the particular state, remain illicit under federal law. This has created a unique obstacle for cannabis businesses that otherwise operate legally under state law and are experiencing financial distress.

The lack of access to bankruptcy is just one among several unique complications that cannabis enterprises face due to the federally illicit status of the product. Included among the obstacles are limited options for banking services and insurance. Cannabis businesses are further disadvantaged because they are not presently eligible for the Small Business Administration (SBA) loan programs that the federal government has established in response to the COVID-19 pandemic. A bill, titled the Emergency Cannabis Small Business Health and Safety Act, that would make cannabis businesses eligible for certain for certain SBA programs (including the Paycheck Protection Program, the Economic Industry Disaster Loans program, and the Economic Injury Disaster Loans Emergency Grants program), was recently proposed in the House of Representatives. The House of Representatives also previously passed the Secured Fair Enforcement Banking Act in September 2019, which would open banking and insurance options to cannabis companies.