Cannabis Companies Finally Gain U.S. Bankruptcy Access

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Bankruptcy has generally been off limits to cannabis companies. Time and time again, the bankruptcy courts have dismissed cases filed by companies engaged in the cannabis business (any business that “touches the leaf” has been the rule). However, a recent decision in The Cannabist Company Holdings bankruptcy case may represent at least the partial opening of the U.S. bankruptcy court system to cannabis companies. Cannabis companies, and investors in cannabis companies, should be aware of the court’s decision and its implications for the cannabis industry.

Why cannabis companies have been excluded from bankruptcy protection

While cannabis is currently legal in a majority of states, it is still illegal under the federal Controlled Substances Act. The Office of the United States Trustee (the “UST”), the government organization overseeing federal bankruptcy cases, has taken the position that a cannabis business cannot seek bankruptcy relief because the business itself violates federal law, notwithstanding its state license. The UST has been successful in dismissing virtually every reported cannabis case.

The Cannabist Chapter 15 case

That is why what happened in the Cannabist case was so surprising. The Cannabist Company Holdings Inc. is a Canadian holding company and was publicly traded on the Cboe Canada stock exchange. It is the parent, not only of its co-debtor The Cannabist Co. Holdings (Canada) Inc., but also the ultimate parent of certain non-debtor subsidiaries located and operating in the U.S. The subsidiaries operate a vertically integrated cannabis cultivation, manufacturing and retail business in eight U.S. states where medical or adult-use cannabis is legal under state law.

On March 24, 2026, the two Cannabist companies commenced insolvency proceedings under Canada’s Companies’ Creditors Arrangement Act (the “CCAA”), Canada’s equivalent to the U.S. Bankruptcy Code. The next day, they filed a motion in U.S. bankruptcy court under Chapter 15 of the Bankruptcy Code asking the court to both recognize their CCAA proceeding and to prevent creditors of the U.S.-based cannabis subsidiaries from taking actions against the subsidiaries.

A Chapter 15 bankruptcy is a case filed in the U.S. while the main insolvency proceeding is pending in another country. In Chapter 15, the representative who is running the insolvency proceeding in the foreign country uses Chapter 15 for a limited purpose to facilitate the foreign proceeding—the foreign proceeding is the main proceeding where all the action is supposed to take place (selling assets, paying creditors, etc.). Once the U.S. bankruptcy court recognizes the foreign insolvency proceeding (usually about 30 days after filing), Chapter 15 enhances legal certainty for international trade, promotes the fair and efficient administration of multinational insolvencies, protects the interests of creditors and other stakeholders, and prevents the dissipation or concealment of assets across jurisdictions.

U.S. bankruptcy courts generally grant recognition to CCAA proceedings. However, most observers expected the UST to oppose recognition of the CCAA proceeding by arguing that the U.S. bankruptcy court should not provide any assistance to the U.S.-based cannabis businesses operated by the subsidiaries because cannabis is still federally illegal. To virtually everyone’s surprise, the UST did not file a written opposition to recognition, and the bankruptcy court entered an order both recognizing the CCAA proceeding and granting certain bankruptcy protections to the U.S.-based cannabis subsidiaries.

Five implications of the Cannabist decision

This is the first time a U.S. bankruptcy court has recognized a foreign insolvency proceeding involving a cannabis company. To those in the cannabis industry, whether as distributor, cultivator, investor or lender, what are the implications of the court’s decision?

First, structure matters. The Debtors were set up as holding companies and did not, themselves, directly operate a cannabis business. There was “space” between the Debtors and the plant. This “space” is important, particularly because some bankruptcy courts have been reluctant to bar cannabis companies from bankruptcy where they are not directly involved in the cannabis operations—i.e., where they do not directly “touch the leaf.”

Second, country of incorporation matters. Cannabis companies may consider utilizing the same Canadian holding company structure to at least leave open the possibility of accessing U.S. bankruptcy courts through Chapter 15. Alternatively, they could incorporate in other jurisdictions where the insolvency regime is open to cannabis insolvency filings and whose insolvency proceedings are generally recognized in the U.S. And even existing U.S.-based cannabis companies may want to consider modifying their corporate structure to take advantage of a cross-border restructuring in case they end up in financial distress.

Third, it may now be possible for distressed cannabis companies to access U.S. bankruptcy courts and to preserve value for an ultimate sale of their assets. To date, distressed cannabis companies have generally ended up in receivership or an assignment for the benefit of creditors, leading to a significant loss of value. However, while bankruptcy may be available, it is unclear how far the U.S. debtor will be able to stretch the limits of Chapter 15, which was designed for a limited purpose and to facilitate the insolvency proceeding pending in the foreign country.

Fourth, lenders to cannabis companies need to recognize that there is now the possibility that they may end up in a bankruptcy proceeding. They need to consider this when framing their credit agreements and collateral packages.

Fifth, cannabis companies must understand the limitations of the Cannabist decision. We do not know why the UST did not object to recognition, and the lone objection to recognition, which was filed by a lender, was consensually resolved. There was no hearing and no written opinion. And other courts, faced with different facts, may come to a different conclusion. However, it does not mean that the UST will not file objections to the extent that, for example, the U.S. debtor tries to sell assets or pay claims in the U.S. The case is far from over, so monitoring exactly what limits this will impose for Chapter 15 cannabis filings will be important as this is the first test case.

Looking ahead

For those in the cannabis industry that have sought a bankruptcy alternative for restructuring or maximizing sale value, the Cannabist decision should provide some hope. The decision opens the door to cross-border restructuring of cannabis companies, but any cross-border filing needs to be meticulously planned and well thought out, given the UST’s historical opposition to bankruptcy relief for cannabis companies. This case also will be noteworthy for how far the UST will allow a Chapter 15 cannabis case to stretch when cannabis is still not legal under federal law.

Mark Salzberg and Katherine Catanese are partners in the Restructuring & Insolvency Practice at global law firm Squire Patton Boggs.