Page 14 - BusinessWest Macrh 6, 2023
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Petition Denied
Cannabis Employee Not Entitled to Federal Bankruptcy
BY MICHAEL MCANDREW, ESQ. and MICHAEL ROUNDY, ESQ.
  “Absent congressional decriminalization of cannabis, issues at the intersection of state and federal laws affecting the cannabis industry will continue to be addressed on an ad hoc, case- by-case basis by federal regulatory agencies, prosecutors, and courts.”
The courts have widely established that cannabis businesses, even if compliant with state cannabis laws, are not protected by federal bankruptcy laws because they operate in a federally illegal industry. But can an employee of a cannabis business who has no ownership interest in that business file for bankruptcy individually under Chapter 13 of the Bankruptcy Code?
This question was answered with a resounding ‘no’ by the U.S. Bankruptcy Court for the District of Massa- chusetts in its recent decision in In re Blumsack, when the court dismissed such an employee’s bankruptcy petition in its entirety.
The would-be debtor, Scott Blumsack, had worked in the Massachusetts cannabis industry since 2021. At the time of the decision, he was the general manager
of a cannabis business that manufactured, retailed, and wholesaled cannabis and cannabis products legally under Massachusetts law. In this role, Blumsack super- vised employees, set up the retail operation, managed all aspects of the retail operation, and regularly acted as a ‘budtender,’ a role in which he regularly distributed cannabis to his employer’s customers. He was appro- priately licensed under Massachusetts law to dispense cannabis, but had no ownership interest in his employ- er’s business.
In 2021, Blumsack filed a voluntary petition for reor- ganization under Chapter 13 of the Bankruptcy Code and submitted a plan of reorganization in which he
proposed making payments to creditors out of the sal- ary that he earned working in his employer’s cannabis operation. In the alternative, he proposed a plan for reorganization that would be funded out of his wife’s retirement funds, which arose from her wages uncon- nected to the cannabis industry.
In response to Blumsack’s proposed plans, the bankruptcy trustee moved to dismiss his bankruptcy petition, arguing that the proposed plans of reorganiza- tion could not be confirmed because the debtor’s activi- ties in connection with his employment violate federal law. By working for a cannabis retailer, Blumsack had violated, and continued to violate, federal law by dis- tributing cannabis and conspiring with his employer to violate federal law. The trustee argued that confirma- tion of the debtor’s plan would necessarily require the trustee to administer proceeds derived from such ille- gal activity.
Blumsack countered that, if the court adopted the trustee’s reasoning, any employee of a marijuana-relat- ed business (such as web designers and warehouse workers serving companies in the industry) could also be deprived of bankruptcy protections because of the cannabis industry’s wide-spectrum contributions to the state’s economy.
 The court dis- agreed. Describ- ing the case as
Cannabis
Continued on page 68
MICHAEL MCANDREW
MICHAEL ROUNDY
>>
  14 MARCH 6, 2023
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