By David Cohen, Garrett Fail, Robert Niles-Weed, Alex Cohen, Max Bloom, Andrew Clarke (Weil, Gotshal & Manges LLP)*
The absence of a reliable path to financial restructuring under the Bankruptcy Code has long been a challenge for companies involved in the state-legal cannabis industry in the United States. This concern is particularly acute as of late: Although the legal cannabis industry has expanded rapidly in recent years, many operators have faced steep losses, heavy debt loads, challenging tax treatment, difficulty accessing the capital markets, and competitive challenges from an oversaturated market. Industry experience and empirical research have shown that without clear access to traditional restructuring tools, financially distressed cannabis companies have historically had few good options.
In the past, cannabis companies have tried and failed to reorganize under chapter 11 of the Code or liquidate under chapter 7. The Office of the United States Trustee has consistently objected to such restructurings, citing the Controlled Substances Act, which outlaws cannabis sales as a matter of federal law (even though this federal law is generally not enforced against state-legal cannabis businesses). And certain courts have applied various provisions of chapter 7 and 11 of the Code to dismiss such cases “for cause” or because they violate those chapters’ requirement that a plan be “proposed in good faith and not by any means forbidden in the law.”
There has been a vibrant debate among bankruptcy academics and practitioners, including on the pages of this Roundtable, about whether chapter 15 of the Bankruptcy Code might provide a viable path for cannabis company restructurings or liquidations. Chapter 15 was designed to handle cross-border insolvency cases. It allows a foreign representative to ask a U.S. bankruptcy court to recognize insolvency proceedings already underway in another country. If the U.S. court grants recognition, the debtor can benefit from a stay that halts creditor actions against its U.S. assets, similar to protections available in chapter 11 but without requiring a U.S. bankruptcy estate or a reorganization plan under American law.
Until recently, this debate was only theoretical. But The Cannabist Company Holdings, Inc. and its affiliates (“Cannabist”) have now answered that question in the affirmative: Chapter 15 is a viable path for domesticating the foreign restructurings of foreign cannabis companies with U.S. operations.
On May 9, 2026, Judge Brendan L. Shannon of the U.S. Bankruptcy Court for the District of Delaware granted recognition of Cannabist’s Canadian restructuring proceedings. Cannabist had commenced restructuring proceedings in Canada under the Canadian Companies’ Creditors Arrangement Act seeking a path to sell the assets of its U.S. subsidiaries, and secured, among other relief, an order in Canada granting a stay of litigation and enforcement actions against Cannabist’s Canadian parent company and U.S.-based subsidiaries. Cannabist then sought recognition of this foreign proceeding and relief under chapter 15. Judge Shannon also granted Cannabist immediate provisional relief enforcing the Canadian Court’s order following a first day hearing on March 26, 2026 that provided protection until the ultimate granting of recognition.
As Cannabist explained in its briefing, “chapter 15 is not chapter 11,” and it lacks the provisions that courts have previously cited to dismiss cannabis-related bankruptcies filed under other chapters of the Code. Chapter 15 implements a regime of comity and is designed to honor the judgments of foreign courts. Recognition under chapter 15 when the statutory requirements are met is mandatory and can be denied only if it would be “manifestly contrary to the public policy of the United States,” pursuant to section 1506 of the Code, which courts have held is an extremely high standard that is invoked only under exceptional circumstances.
Cannabist argued that the conditions for discretionary denial were not satisfied in its case. The nature of the debtor’s underlying business has never been held to implicate the sort of procedural unfairness or violation of fundamental constitutional or statutory rights that justifies invoking this rarely used public-policy override. Cannabist further emphasized the increasing trend towards the normalization of cannabis in the United States, including the Department of Justice’s recently announced rescheduling of certain cannabis products under the Controlled Substances Act.
Cannabist’s innovative restructuring offers a novel pathway for cannabis companies to restructure their debts under foreign law and secure critical protections in the United States. While many issues in this area remain to be litigated, it is now clear that (at least in certain circumstances) chapter 15 offers can offer a viable path for cannabis companies to secure a stay and pursue a value-maximizing restructuring or wind-down.
*The authors represent Cannabist in its bankruptcy proceedings.