Failed U.S. marijuana companies' creditors may have to launch a state-by-state scramble for assets.
It was only a year ago that exuberance enveloped the marijuana industry. Legalization was spreading, and the growth potential seemed boundless.
Some of those companies — both publicly traded and privately owned — are two to four weeks away from missing payroll and none of them is an attractive takeover target, the executive said.For U.S. firms, this poses an intractable problem: Bankruptcy is governed by federal law, which considers marijuana an illegal substance. This means they can’t get Chapter 11 protection from creditors or a centralized sale process.
Although the smallest players are most at risk, better-known companies are also running low on cash. Los Angeles-based MedMen Enterprises Inc. said last week that it reduced corporate staff by more than 40%. It also issued $27 million of shares at 43 cents each, 14% below the stock’s Dec. 10 closing price.In Canada, Green Organic Dutchman Holdings Ltd. said Friday that it has received a 13% first-lien credit facility from private lender Maynbridge Capital, backed by all the company’s assets.
For U.S. pot companies, options for capital are limited from the outset because traditional U.S. banks — hamstrung by federal law — will rarely do business with them. At the same time, the federal tax code bars cannabis companies from taking tax deductions from normal business operations.
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