Have the doors to U.S. Bankruptcy courts finally swung open to cannabis companies? Perhaps, but still in only very limited circumstances involving a foreign debtor. Nonetheless, Judge Brendan Shannon’s recent order granting recognition of a Canadian insolvency proceeding [1] filed by a cannabis company is the first crack in the door that many bankruptcy professionals have been waiting for and may provide a roadmap for future cannabis restructurings in the U.S.
The Facts
On March 25, 2026, The Cannabist Company Holdings Inc. (the “Parent Company”) and The Cannabist Co. Holdings (Canada) Inc. (“Cannabist Canada” and with Parent Company, the “Debtors”) filed a motion for recognition (the “Recognition Motion”) under Chapter 15 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. By the Recognition Motion, the Debtors requested that the U.S. Bankruptcy Court recognize their insolvency proceeding under Canada’s Companies’ Creditors Arrangement Act (the “CCAA”) that began one day prior to the Chapter 15 filing.
The Parent Company is a Canadian holding company and was publicly traded on the Cboe Canada stock exchange. It is the parent not only of its affiliated Debtor, Cannabist Canada, but is also the ultimate parent of certain non-Debtor subsidiaries (the “Subsidiaries”) which 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.
The Debtors commenced their proceeding under the CCAA to sell their operating businesses and to wind down any remaining operations. They filed the Recognition Motion to prevent creditors of the U.S.-based Subsidiaries from commencing a “race to the courthouse” to collect debts owed to them by the Subsidiaries. Such a race would interfere with, or potentially wholly derail, the Debtors’ sale efforts.
The Problem
As readers of our blog know (see Cannabis and District Courts: Are Those Courthouse Doors Closed Too?) | Restructuring GlobalView (restructuring-globalview.com), the challenge facing the Debtors in the United States is that while cannabis is currently legal in a majority of states (for medicinal and/or recreational uses), it is still illegal under the federal Controlled Substances Act 21, U.S.C. §§ 801, et seq. (the “CSA”). In fact, the recent rescheduling of certain cannabis products from Schedule I to Schedule III did not change the fact that cannabis remains illegal under federal law. Based on the CSA, the Office of the United States Trustee (the “UST”), the government organization overseeing federal bankruptcy cases, has taken the position in most, if not all, cannabis-related cases that a marijuana business cannot seek bankruptcy relief because the business itself violates the CSA, notwithstanding their state licenses. Therefore, observers of the Cannabist Case expected the UST to file a motion to dismiss since the Recognition Motion asked the U.S. Bankruptcy Court to assist in the sale of cannabis businesses through the imposition of the automatic stay and other provisions of the Bankruptcy Code.
The Surprise
To virtually everyone’s surprise, the UST did not take a formal position in the case and did not file any opposition to the Recognition Motion. Instead, the only party to oppose recognition was a lender which argued in its objection that permitting the Debtors to use Chapter 15 to monetize their cannabis-related assets was “manifestly contrary to the public policy” and that therefore, the Recognition Motion should be denied under Section 1506 of the Bankruptcy Code. Section 1506 provides that the court may “refus[e] to take an action governed by [Chapter 15] if the action would be manifestly contrary to the public policy of the United States.” The objecting lender further argued that “Section 1506 is a safeguard and remedy ‘for genuine threats to core U.S. constitutional or statutory rights’” and comity should not be granted to the CCAA proceeding because the Debtors’ business violated the CSA.
The Recognition Order
On May 9, 2026, without a hearing, Judge Shannon entered an order (the “Recognition Order”) granting the Recognition Motion. The Recognition Order provides many forms of relief, including: (i) applying the automatic stay set forth in Section 362 of the Bankruptcy Code to the Debtors and the Debtors’ property in the U.S.; (ii) applying Section 363 of the Bankruptcy Code to property of the Debtors within the U.S.; and (iii) permitting the Parent Company to operate the Debtors’ businesses and exercise the rights and powers of a trustee. The Recognition Order also reserves the lender’s objections by allowing it to prosecute its objection to recognition if the Debtors and the lender are unable to reach an agreement by May 26 (or a date otherwise agreed to by the parties). However, if no agreement is reached and the lender successfully prevails on its objection, the objection would be sustained solely with respect to the lender, and the Recognition Order would otherwise remain in full force and effect as to all other parties.
What Are the Implications of the Recognition Order?
Judge Shannon’s Recognition Order represents the first time that Chapter 15 recognition was granted in favor of a foreign cannabis insolvency proceeding. Although the UST did not interpose a formal objection, the Recognition Order can certainly be cited as support that recognition of a foreign cannabis insolvency proceeding is not “manifestly contrary to the public policy” for purposes of Section 1506.
However, perhaps the bankruptcy court’s doors have opened — but maybe just a crack. In prior cannabis cases, the UST argued for dismissal both for “cause” under Section 1112(b)(1) of the Bankruptcy Code because of the cannabis debtor’s violation of the CSA and because a cannabis debtor is unable to propose a plan “in good faith and not by any means forbidden by law” as required by section 1129(a)(3) of the Bankruptcy Code. Chapter 15 does not have similar provisions, so the UST’s “go to” justifications for dismissal were not present in this case.
Nonetheless, the Cannabist Case provides a potential roadmap for distressed cannabis companies. Many of the larger cannabis companies located in the U.S. are ultimately owned by Canadian parents. As was done in the Cannabist Case, insolvency proceedings may be initiated in Canada (or in another jurisdiction where cannabis is fully legal), and the foreign debtors may then seek Chapter 15 recognition in the U.S.—at least in the Third Circuit. If the foreign proceeding is recognized, as in the Cannabist Case, the foreign representative will be given enormous leeway and power to complete the insolvency proceeding, including with respect to property located in the U.S. (although the foreign main proceeding pending in the non-U.S. country will see all the main restructuring action as relief under Chapter 15 is limited). So, to answer the question posed in the title to this blog, as it now stands cannabis companies may be able to obtain Chapter 15 relief in the Third Circuit. We fully expect that this issue will come up in other courts and we will keep our readers apprised of any developments.
[1] In re Cannabist Company Holdings, Inc., et al., Case No. 26-10426 (Bankr. D. Del. Mar. 25, 2026) (the “Cannabist Case”).