Cannabis Meets Chapter 15: How The Cannabist Company Achieved Unprecedented US Bankruptcy Protection — And What It Means For Creditors

The Bottom Line

For years, cannabis companies have been unable to access U.S. bankruptcy courts due to the federal classification of marijuana. Federal courts have consistently dismissed Chapter 11 cases filed by cannabis operators (and even their tangentially related counterparts) on the ground that marijuana’s status as a Schedule I controlled substance under the Controlled Substances Act (CSA) renders bankruptcy administration of cannabis-related assets incompatible with federal law. The result has been that one of the most capital-intensive and financially volatile industries in the country has had no meaningful access to the federal restructuring tools (as opposed to individual state law options) available to virtually every other business sector.

Recently, however, U.S. bankruptcy courts have begun to open the door to cannabis operators in the Chapter 15 context. The United States Bankruptcy Court for the District of Delaware recognized the Canadian restructuring proceeding of The Cannabist Company Holdings Inc. (the Company or the Debtors) as a foreign main proceeding after the Company filed for Chapter 15 protection in Delaware and, in doing so, extended several protections otherwise unavailable under the Bankruptcy Code to the Debtors and the Debtors’ property within the United States.

While this case has proceeded under Chapter 15, not Chapter 11, the practical effect — a federally imposed stay shielding U.S.-based cannabis assets from creditor action — is something no other active cannabis company has yet achieved through the U.S. bankruptcy system. The implications of this decision are meaningful for creditors operating under the assumption that their collateral will not be subject to the Bankruptcy Code’s automatic stay. And while not precedential, it is also interesting to understand the parameters of the Debtors’ settlement with their secured mortgage lender.

Background

The Company is one of the largest multistate cannabis operators in the United States, with licensed cannabis operations in several states that have legalized cannabis for medical or recreational use. Notwithstanding state-level authorization, its core business (the cultivation, processing, and dispensing of marijuana) remains a federal felony under the CSA. 

The Company faced significant headwinds in recent years, including competitive pressures stemming in part from the federal classification of its product, supply chain constraints, and challenges gaining access to capital markets. In addition, the Company had a long-running dispute with the IRS about the applicability of certain corporate credits to its cannabis operations, leaving the Company with a potentially devastating tax bill for the disputed years. On December 31, 2025, due to liquidity constraints, the Company defaulted under its secured notes. After negotiating a series of forbearance extensions with its senior noteholders, the Company ultimately initiated a Canadian restructuring proceeding on March 24, 2026.

Within the Canadian proceeding, the Company commenced a formal sale process for its assets, including various U.S. assets owned by non-Debtor entities. The Company then sought recognition of the Canadian proceeding in the United States under Chapter 15 to facilitate the sale process and provide for an orderly wind-down of the U.S. assets. The relief sought within the recognition motion included the application of the automatic stay to the non-Debtor U.S. entities that owned the various U.S. assets — relief not explicitly afforded to non-Debtor assets under sections 1520, 1521, and 1522 of the Bankruptcy Code. Two objections were raised in connection with the Debtors’ recognition motion: The U.S. Trustee raised an oral objection to recognition at the initial hearing, and East West Bank (EWB), one of the Debtors’ secured mortgage lenders, filed a written objection asserting two principal grounds for denial.

First, EWB argued that recognition must be denied under Chapter 15’s public policy provision because allowing recognition would be manifestly contrary to the public policy of the United States; specifically, EWB argued that the stated purpose of the Canadian proceeding was to monetize cannabis-related assets and distribute the resulting proceeds, conduct that remains illegal under the CSA. Second, EWB argued that even if recognition were permissible, the Debtors’ request for an extension of the automatic stay and broad injunctive protections to cover non-Debtor U.S. subsidiaries exceeded the authority granted by Chapter 15.

Notwithstanding these objections, the court granted the recognition motion (the Recognition Order) without a hearing on recognition, but after the parties agreed to language in the Recognition Order that expressly reserved EWB’s rights and provided that if EWB and the Debtors did not reach an agreement, EWB could renew its objection solely with respect to the application of the automatic stay to EWB’s collateral.

Impact on Creditors: The EWB Objection and Stipulation 

EWB appears to have succeeded in convincing the Debtors that it was directly impacted by the Recognition Order and negotiating related relief. 

Before the Canadian proceeding began, EWB had lent the Debtors’ non-Debtor U.S. subsidiaries just over $40 million, secured by non-Debtor properties in New York, New Jersey, and Maryland (the Properties). EWB’s collateral, which was owned by and securing debt issued by non-Debtors, became subject to the automatic stay as a result of entry of the Recognition Order. Given the general reluctance of U.S. bankruptcy courts to grant relief to cannabis operators, this was likely not a risk EWB anticipated when it issued the loans. 

After reserving its rights in the Recognition Order, as discussed above, EWB ultimately negotiated a stipulation, later approved by the U.S. Bankruptcy Court, with the Debtors that allows EWB to withdraw and apply funds from certain non-Debtor bank accounts serving as collateral for its loans to satisfy monthly principal and interest payments due under the loan agreements. The stipulation further requires the turnover of the deed of the New York property to EWB and resolution of the two other mortgages through foreclosure if the Debtors are unable to sell the remaining Properties by certain dates. Importantly, the automatic stay and any other restriction or injunction imposed by order of the U.S. court or Canadian court were modified and vacated to the extent necessary to permit EWB to perform any act authorized or permitted under the stipulation. In exchange, EWB agreed not to sue the Company or its managers, directors, and officers with respect to the mortgages, the Properties, and the transactions contemplated by the stipulation. 

Why This Case Matters

On the one hand, the Cannabist ruling materially changes the creditor landscape for cannabis companies in the United States. An active cannabis company has obtained uncontested (settled) Chapter 15 relief and access to certain protections. For creditors that previously assumed cannabis assets were, per se, beyond the reach of federal bankruptcy protection, this changes those assumptions.

On the other hand, the Cannabist ruling does not resolve the tension between state-level cannabis legalization and federal prohibition: a tension that Congress, not the courts, is ultimately best positioned to address. But it demonstrates that, in the absence of legislative resolution, sophisticated debtors and their advisors may find creative pathways through a federal bankruptcy system that was not designed with the cannabis industry in mind. While the Recognition Order provides support for cannabis companies to avail themselves of Chapter 15 relief, potential issues over recognition, including the rights of the secured creditor and the application of the automatic stay, were avoided through a negotiated resolution. It also reflects that bankruptcy cases, more generally, can provide an opportunity for secured lenders to facilitate a sale or other consensual foreclosure on their collateral as part of a negotiated process. 

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