Bankruptcy Court Finally Dismisses Filing of Marijuana Dispensary
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Bankruptcy Court Finally Dismisses Filing of Marijuana Dispensary

November 1, 2012


Several weeks after a San Diego medical marijuana dispensary filed for bankruptcy, a judge has finally dismissed the case from court, according to a report from the Wall Street Journal.

Sources indicate that Mother Earth Alternative Healing Cooperative, a medical marijuana distributor in southern California, was evicted from its building a few months ago after falling behind on its rent.

In order to stay solvent, and remain in its building, the dispensary filed for Chapter 11 bankruptcy several weeks ago. The outfit’s bankruptcy filing posed unique questions about bankruptcy laws by state.

While many features of bankruptcy vary from state to state, the filing process takes place in a federal court under federal rules and regulations. And the use of marijuana for medical purposes remains illegal under federal laws, although it is legal in a few select states for a narrow range of purposes.

California is one of the states that allows some dispensaries to sell medical marijuana. So Mother Earth’s activities were legal under state criminal laws, but illegal under federal ones.

The question was whether the federal bankruptcy court would view the company’s activities as legitimate, and if it would view its assets, large amounts of marijuana, as legal assets under federal laws.

In response to these issues, Judge Laura Taylor firmly decided that Mother Earth's case has to be dismissed because allowing the case to continue would "support a business that is engaged in activity that is prohibited, indeed criminal, under federal law."

Judge Taylor went on to note that the company’s assets were immediately "subject to forfeiture," due to their illegal nature, and thus any "payments made during the case are illusory."

So, in this case, federal laws prohibiting the sale of marijuana trumped California’s more relaxed regulations. Since the bankruptcy court operates under a federal umbrella, the decision was that a "criminal" business cannot discharge its debts.

Had the judge allowed the case to move forward, she would have been in direct violation of federal laws. But with more states mulling the possibility of legalizing marijuana use, the United States Congress could soon feel pressure to decriminalize the popular substance.

And if that happens in the next few years, the Mother Earth bankruptcy case will become a novelty from a different era. If not, Mother Earth will likely set a precedent for similar bankruptcy cases for the foreseeable future.

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