There has been a debate raging lately among consumer bankruptcy attorneys about how to counsel a client who grows and cultivates medical marijuana.  The basic question is:  does a crop, illegal under federal laws, constitute property of the bankruptcy estate and need it be disclosed in the bankruptcy schedules.  The problem lies in the fact that, while legal in California if it meets certain standards for medical uses, the act of growing marijuana constitutes a crime under the laws of the United States.  Filing a bankruptcy petition could put the various federal government police agencies on notice of a crime that could ultimately lead to confiscation and prosecution.  A sad day indeed for the medical marijuana grower and erstwhile bankruptcy debtor. On the other hand, failing to list an asset is itself a Federal Bankruptcy crime.

What to do?  I would say that filing the bankruptcy case, as long as all assets are disclosed, has very little chance of leading to prosecution for illegal possession and cultivation.  The federal government has pretty much given up the fight against medical marijuana growers and dispensaries that are otherwise legal under state law.  But, such marijuana could be considered a valuable asset.  It seems like an unlikely proposition that a trustee would actual attempt to administer a marijuana crop by selling the asset for the benefit of creditors. However, I think the good advice here is to file the case only if the asset can be fully disclosed and fully exempt and simply avoid the issue.  A debtor usually has the choice of timing of the filing of the bankruptcy case.  I would recommend to only file when the assets have been consumed or otherwise disposed of in the ordinary course of the business and affairs of the debtor.  This could simply be after the debtor has sold some of his or her crop and spent down the proceeds to below the  exemption threshold that applies in the particular case.  Maybe it is time to invest proceeds into an IRA or other asset where a larger exemption might be available.

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