LANSING, MI -- Marijuana is illegal federally; therefore, federal bankruptcy laws won’t apply to Michigan-licensed marijuana businesses, a state judge says.

So what would happen if a Michigan marijuana business goes under financially, Kent County Judge Christopher P. Yates on Feb. 18 told the House Judiciary Committee he was asked repeatedly during a federal bankruptcy conference last summer.

“As a result of that, whether we like it or not, we in the state of Michigan in our court system are going to have to handle the fallout from every single marijuana facility that doesn’t make it financially,” Yates said.

For this reason, Rep. Brandt Iden, R-Portage, sponsored two bills he said will proactively help state judges address the inevitable financial failures of some of a state-licensed marijuana businesses.

The bills, House Bill 5490 and 5491, if passed into law, require the state Marijuana Regulatory Agency create a procedure for appointing a receiver to operate an indebted marijuana business in lieu of a federal bankruptcy court option.

The House Judiciary Committee approved both bills to go before the full House with a recommendation for their passage in a vote taken Tuesday, Feb. 25.

According to the National Law Review, incompatible federal bankruptcy laws are creating a lack of judicial clarity in state courts where marijuana businesses exist across the nation.

“Courts struggled this year to find a balance between state-licensed cannabis activity and the federal right to seek bankruptcy protection under the Bankruptcy Code,” the National Law Review said. “During 2019, we had the first circuit-level opinion in the bankruptcy/cannabis space that appeared to open the door to bankruptcy courts, albeit slightly. We also had lower court opinions slamming that door shut.”

-- Gus Burns is the marijuana beat reporter for MLive. Contact him with questions, tips or comments at fburns@mlive.com or follow him on Twitter, @GusBurns. Read more from MLive about medical and recreational marijuana.

More on MLive:

Pot of gold at end of hemp rainbow?

Vaping cartridge recall includes 3,400 that were sold

Michigan issues updated vaping rules

Michigan can’t tell who brought contaminated cartridges to licensed market