For years, cannabis companies have largely been excluded from the U.S. bankruptcy system. Courts have frequently dismissed cannabis-related bankruptcy filings on the basis that the debtors’ operations violated federal law or required the court to administer assets connected to federally prohibited activity. As a result, many distressed cannabis operators have relied on state-law receiverships, out-of-court restructurings, and piecemeal asset sales instead of centralized restructuring proceedings.
That changed on May 9, 2026, when the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) granted recognition under chapter 15 of the Bankruptcy Code to The Cannabist Company’s Canadian restructuring proceeding.[1] The ruling marks the first instance in which a U.S. bankruptcy court has recognized a foreign insolvency proceeding involving a cannabis-related enterprise despite the continuing federal prohibition on cannabis under the Controlled Substances Act.
The Cannabist Company Holdings Inc. (the “Parent Company”) is a Canadian holding company publicly traded on the Cboe Canada Inc. stock exchange in Toronto, Ontario. It is the ultimate parent of a group of non-debtor subsidiaries (collectively with the Parent Company and its debtor affiliate, the “CC Group”) that operate vertically integrated cannabis cultivation, manufacturing, and retail businesses in eight U.S. states where medical or adult-use cannabis is legally permitted under state law. The Parent Company and its Canadian debtor affiliate, The Cannabist Company Holdings (Canada) Inc. (together, the “Debtors”), are co-issuers of approximately $179 million in senior secured notes governed by Canadian law. The CC Group faced significant headwinds in recent years, including competitive pressures, supply-chain challenges, and difficulty accessing capital markets, which ultimately led to a default on the senior notes in January 2026. In response, the CC Group undertook a series of operational restructuring initiatives, including a sale process for certain strategic markets and a subsequent wind-down of remaining operations. On March 24, 2026, the Debtors commenced proceedings under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice to complete the remaining sales under court protection. The Debtors then filed petitions under chapter 15 of the Bankruptcy Code seeking recognition of the CCAA proceedings in the United States to obtain the benefit of the Canadian court’s stay and to protect the CC Group’s U.S.-based assets and operations during the sale process.[2]
Recognition under chapter 15 is governed primarily by section 1517 of the Bankruptcy Code, which allows a U.S. bankruptcy court to recognize a foreign insolvency proceeding as either a “main” or “non-main” proceeding, assuming certain statutory requirements have been met. A “main” proceeding is a proceeding occurring in the jurisdiction where the debtor has its “center of main interests” (COMI)—i.e., where the debtor is incorporated or its day-to-day business operations and core assets are administered. Once the applicable statutory requirements are satisfied, recognition is generally mandatory unless doing so would be “manifestly contrary” to U.S. public policy under section 1506.
That framework differs meaningfully from chapter 11. Domestic cannabis debtors have historically encountered difficulty under provisions requiring courts to assess whether a debtor is engaged in ongoing violations of federal law or whether a restructuring plan was proposed in good faith.[3]
It is also notable that the Debtors here were limited to Canadian parent holding companies. The cannabis cultivation, manufacturing, and retail operations were conducted through separate non-debtor subsidiaries. The Debtors emphasized that they did not themselves hold cannabis licenses or directly handle cannabis-related assets.
That distinction appears to have been important to the Bankruptcy Court’s analysis. By limiting the Debtors to non-operating holding companies, the chapter 15 petitions avoided requiring the Bankruptcy Court to directly administer an ongoing cannabis business or exercise jurisdiction over assets and operations that remain prohibited under federal law.
East West Bank (EWB), a secured creditor, objected to recognition on several grounds, principally under the public policy exception in section 1506 of the Bankruptcy Code. EWB contended that because cannabis remains a Schedule I controlled substance under the Controlled Substances Act, recognition would require the Bankruptcy Court to affirmatively endorse and facilitate illegal conduct under federal law—namely, the sale and liquidation of cannabis assets and the distribution of resulting proceeds. Citing to a line of chapter 11 decisions in which courts dismissed cannabis-related cases on the ground that neither a trustee nor a court may be asked to administer assets or proceeds derived from activity criminalized under federal law, EWB argued that the same principle applied with equal force in the chapter 15 context: because recognition would necessarily implicate the Bankruptcy Court in facilitating ongoing violations of the Controlled Substances Act, it would be “manifestly contrary” to the public policy of the United States and must be denied under section 1506.[4]
The U.S. Trustee did not take a formal position in the case and did not file an objection. Rather, the Trustee submitted informal comments to the Debtors which were resolved prior to the recognition hearing.
The sole objection by EWB was ultimately resolved, and the court entered the consensual recognition order. Although the court did not issue a detailed written opinion, the outcome is likely to be closely studied by cannabis companies, lenders, restructuring professionals, and insolvency practitioners.
The ruling may influence how cannabis businesses structure future financings and corporate groups. Companies with cross-border operations may increasingly consider whether Canadian holding-company structures could provide a more predictable restructuring framework by allowing for a restructuring under Canadian law that could then be recognized in the U.S. Existing cannabis businesses without a nexus to Canada (or other jurisdiction where cannabis cultivation is legal) may also consider whether it is possible to “shift” their COMI to Canada or another cannabis-friendly jurisdiction in anticipation of a potential restructuring (à la Fossil Group or Mega Newco).
The decision may also affect lender strategy. Creditors evaluating distressed cannabis borrowers may now need to consider the possibility that a borrower could seek chapter 15 recognition tied to a foreign restructuring proceeding, potentially triggering U.S. stay protections and coordinated cross-border relief.
At the same time, important uncertainties remain. The Cannabist recognition decision rested on the specific facts of the case, most importantly on the fact that the Debtors were mere holding companies that did not directly touch cannabis cultivation or sales. Other courts may approach similar issues differently, particularly where cannabis operations are more directly tied to the debtor entities seeking relief.
Although the long-term impact of the Cannabist decision remains uncertain, the ruling represents a meaningful development in cannabis restructuring law and may provide a framework for future cross-border insolvency strategies in the industry.
For more information on how this decision may impact your business or for assistance with restructuring matters, please contact our team.
This client alert is for informational purposes only and does not constitute legal advice.
[1] In re The Cannabist Co. Holdings Inc., No. 26-10426 (BLS), Docket No. 82, Order Granting Recognition of Foreign Main Proceeding and Request for Certain Related Relief (Bankr. D. Del. May 9, 2026).
[2] In re The Cannabist Co. Holdings Inc., No. 26-10426 (BLS), Docket No. 5, Motion for Recognition of Foreign Proceeding and Request for Certain Related Relief (Bankr. D. Del. Mar. 25, 2026).
[3] See, e.g., Burton v. Maney (In re Burton), 610 B.R. 633, 639–40 (B.A.P. 9th Cir. 2020) (affirming dismissal of chapter 13 case where administration of potential litigation proceeds would require trustee and court involvement with proceeds of activity criminalized by the Controlled Substances Act); Way to Grow, Inc. v. Inniss (In re Way to Grow, Inc.), 610 B.R. 338, 345–46 (D. Colo. 2019) (affirming dismissal of chapter 11 cases for cause under section 1112(b) where debtors sold equipment and supplies to persons and entities growing marijuana and knew those products would be used to grow marijuana), aff’g In re Way to Grow, Inc., 597 B.R. 111 (Bankr. D. Colo. 2018); Arenas v. United States Trustee (In re Arenas), 535 B.R. 845, 853–54 (B.A.P. 10th Cir. 2015) (affirming dismissal where Trustee could not administer marijuana-related assets without violating federal law); In re Rent-Rite Super Kegs W. Ltd., 484 B.R. 799, 805–10 (Bankr. D. Colo. 2012) (finding cause to dismiss chapter 11 case where debtor derived revenue from leasing space to marijuana growers).
[4] In re The Cannabist Co. Holdings Inc., No. 26-10426 (BLS), Docket No. 72, Objection to Motion for Recognition of Foreign Proceeding and Request for Certain Related Relief, ¶¶ 29-39 (Bankr. D. Del. May 1, 2026).