A U.S. bankruptcy judge has dismissed the case of a Colorado marijuana business owner, stating that while he is in compliance with state law, he is breeching the federal Controlled Substances Act.
Frank Arenas, wholesale distributor and producer of marijuana, was seeking Chapter 7 bankruptcy protection. According to his petition, he owes $556,000 to unsecured creditors.
He testified he owns roughly 25 marijuana plants, each valued at $250, which Arenas would have liquidated into payments in his Chapter 7 case. However, the trustee could not take control of the plants without breaking federal law.
Additionally, Arenas’ case could not be converted to a Chapter 13, which would permit him to pay off his debts gradually, because, as Judge Howard Tallman writes, the agreement would be financed “from profits of an ongoing criminal activity under federal law.”
"Violations of federal law create significant impediments to the debtors' ability to seek relief from their debts under federal bankruptcy laws in a federal bankruptcy court," Judge Tallman added.
Arenas’ case the second marijuana business bankruptcy dismissed in Colorado including a marijuana business; a least two other cases have been discharged in California.
The inability to file for bankruptcy is one of many issues marijuana business owners currently face.
Forbes reported last week how many banks are leery to deal with marijuana businesses because of potential legal problems they could face. Bank personnel could be prosecuted for a number of crimes, such as money laundering or marijuana conspiracy, and face up to 10 year mandatory minimum sentences, depending on the amount of pot in question.
At this time, marijuana business owners will be caught between state and federal law, according to Sam Kamin, a law professor at University of Denver.
"As long as it is illegal under federal law, we are going to have weird anomalies like that," Kamin said.
Arenas is appealing Judge Tallman’s decision.