Cannabis Employee Not Entitled To Federal Bankruptcy

By Contributor March 3, 2023
Petition Denied
By Michael McAndrew, Esq. and Michael Roundy, Esq.

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 Massachusetts 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 supervised 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 appropriately licensed under Massachusetts law to dispense cannabis, but had no ownership interest in his employer’s business.

In 2021, Blumsack filed a voluntary petition for reorganization under Chapter 13 of the Bankruptcy Code and submitted a plan of reorganization in which he proposed making payments to creditors out of the salary 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 unconnected to the cannabis industry.

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