In re Way to Grow, Inc., 597 B.R. 111

Background

Debtors Way to Grow, Green Door Agro, and holding Pure Agrobusiness operate hydroponic retail stores (seven in Colorado) and sell products broadly used in horticulture; owner/manager is Richard Byrd.
Corey Inniss, former owner/founder, sold Way to Grow to Byrd in 2016; received a promissory note secured by virtually all Debtors' assets.
Inniss initiated state-court litigation and sought a receiver; Debtors filed Chapter 11 before a receiver was appointed.
Debtors publicly and internally marketed to and catered for commercial cannabis growers; store managers and marketing materials showed heavy orientation toward marijuana customers.
Inniss moved to dismiss or abstain, arguing the bankruptcy is a two‑party dispute and that Debtors’ ongoing marijuana‑related operations violate the federal Controlled Substances Act (CSA).
After a multi‑day evidentiary hearing, the bankruptcy court found Debtors’ post‑petition business conduct violated 21 U.S.C. § 843(a)(7) and dismissed the Chapter 11 cases under 11 U.S.C. § 1112(b).

Issues

Issue	Inniss's Argument	Debtors' Argument	Held
Whether Debtors’ marijuana‑connected business activities bar bankruptcy relief	Debtors are engaged in continuing violations of the CSA such that federal courts cannot provide equitable relief	Debtors sell lawful hydroponic supplies to a broad customer base and do not directly manufacture/distribute drugs; they merely provide information and products usable for many crops	Court held Debtors’ ongoing post‑petition conduct violated federal law and dismissed the cases under § 1112(b)
Aiding and abetting / conspiracy liability for customers’ CSA violations	Debtors intentionally assisted marijuana cultivation and conspired with growers to violate the CSA	Debtors lack specific intent to facilitate crimes; products and advice are general horticultural goods/services	Court found insufficient evidence of conspiracy or shared specific intent; aiding/conspiracy not established
Sale/distribution of equipment in violation of § 843(a)(7) (drug‑manufacturing equipment)	Debtors knowingly sell equipment and supplies to customers who use them to grow marijuana, satisfying the statute’s scienter	Debtors contend products have lawful uses and asserting knowledge alone is insufficient for criminality	Court applied Tenth Circuit precedent (Truong) but found abundant evidence Debtors had actual knowledge/"reasonable cause to believe" their products would be used to cultivate marijuana and thus violated § 843(a)(7)
Whether remedial orders or alternatives (abandonment, cease sales) could cure violations and allow reorganization	Inniss argued dismissal or abstention appropriate; sought to vindicate state proceedings	Debtors argued they could reorganize by rejecting leases, cutting costs, or by complying with court restrictions	Court found no practical or enforceable cure: decoupling marijuana customers would destroy the business and monitoring compliance would be infeasible; dismissal appropriate

Key Cases Cited

Rent‑Rite Super Kegs West Ltd. v. (In re Rent‑Rite Super Kegs West Ltd.), 484 B.R. 799 (Bankr. D. Colo. 2012) (debtor leasing to marijuana businesses engaged in ongoing CSA violations; dismissal)
In re Arenas, 514 B.R. 887 (Bankr. D. Colo. 2014) (Chapter 7 case involving marijuana grow; trustee could not administer illegal assets; dismissal)
In re Arenas (BAP), 535 B.R. 845 (10th Cir. B.A.P. 2015) (BAP affirmed that marijuana business debtors cannot obtain federal bankruptcy relief)
United States v. Truong, 425 F.3d 1282 (10th Cir. 2005) (interpretation of "reasonable cause to believe" scienter for statutes criminalizing possession/distribution of drug‑manufacturing equipment)
United States v. Rosalez, 711 F.3d 1194 (10th Cir. 2013) (aiding and abetting requires shared intent and affirmative action)
Gonzales v. Raich, 545 U.S. 1 (2005) (federal CSA preempts state marijuana legalization under Commerce Clause)
In re McGinnis, 453 B.R. 770 (Bankr. D. Or. 2011) (plan funded by marijuana operations cannot be confirmed because dependent on activity illegal under federal law)