The legal cannabis landscape has rapidly evolved, particularly in states like Delaware, which legalized medical marijuana in 2011 and recreational use in 2023. However, the complexities of cannabis law become more pronounced in the context of bankruptcy.
While legal in Delaware, cannabis remains classified as a Schedule I substance under the federal Controlled Substances Act. The federal prohibition creates a convoluted legal environment for cannabis businesses, especially concerning access to banking services and bankruptcy protections. Cannabis businesses in Delaware facing financial difficulties often encounter challenges, including lack of access to capital and banking services. While traditional businesses can file for protection under the federal Bankruptcy Code, cannabis businesses frequently find themselves ineligible for such protections. Courts have historically interpreted the Bankruptcy Code to exclude entities engaged in illegal activities, like cannabis operations, regardless of state legality.
Developments in Bankruptcy Case Law
Federal bankruptcy courts generally prohibit bankruptcy relief for operating cannabis businesses due to their …