The Cannabist appears to be testing a new pathway to court, but the road signs to success are unclear
My news feed this morning had an interesting story from Cannabis Equipment News. The Cannabist Company has filed for federal bankruptcy protection and is selling off its assets in Illinois, New Jersey, Colorado, Massachusetts, Maryland, and West Virginia.
What caught my eye was not the prospect of another large multi-state operator (known in the industry as an MSO) going out of business. Back in 2019, I predicted (to much ridicule) that many top names would go bust; it just took a year or so longer than my crystal ball foreshadowed. Rather, what piqued my interest in particular was that a licensed, plant-touching, operational cannabis company had entered the US bankruptcy system.
But while the aforementioned article reported a fair number of facts, it stopped short of a deeper discussion about the use of this mechanism in this industry. Bankruptcy in the United States is not available to cannabis companies, because while the feds might begrudgingly tolerate them, these businesses are federally illegal. Still, the concept does come up in the cannabis realm, and this news item presents an opportunity to explore when and how.
Chapter 15, Canada, and cannabis companies
Failed cannabis operators in the US often seek state-level receivership. It is a burgeoning industry in Massachusetts, with 25-plus active receiverships in process. The receiver takes control of the failed business to liquidate its assets. Because this involves licensed operations, the Cannabis Control Commission must consent to the arrangement. All of which means that attorneys who made money helping operators and investors into this industry are now earning fees getting them out. And unlike many other cannabis bills, these ones get paid. Bankruptcy counsel and receiver fees are typically settled at the front of the line, ahead of trade and other unsecured creditors.
Now, some terminology. Chapter 7 is a liquidation of a business. Chapter 11 is a reorganization. Then there is the little-known Chapter 15, a specialized federal bankruptcy provision that manages insolvency cases involving parties, assets, or debtors in more than one country. In the early days of legalized cannabis, most publicly traded operators went public on the Canadian stock exchanges. Chapter 15 provides a framework for US courts to recognize foreign insolvency proceedings, enabling foreign representatives to cooperate with courts here to protect assets and creditors.
While US cannabis companies are generally barred from filing for standard Chapter 7 or Chapter 11 bankruptcy because marijuana is federally illegal under the Controlled Substances Act (CSA), Chapter 15 may offer a different legal pathway for companies with international ties. It is often called a “side door” for the cannabis industry. A company with operations in both Canada (where cannabis is federally legal) and the US can first file for insolvency in Canada, and then ask a US court to recognize that foreign proceeding under Chapter 15. Unlike other bankruptcy chapters, Chapter 15 focuses on “recognizing” a foreign court’s process rather than having a US trustee manage “illegal” assets. This is a major distinction. The constructive case management is outside the US court system.
A short history of bankruptcy and cannabis
In late March 2026, the Cannabist Company Holdings Inc. filed a Chapter 15 petition in the District of Delaware. They are seeking US recognition of their Canadian proceedings to facilitate an orderly sale of operations in several US states, including Ohio and Delaware. The biggest hurdle to this strategy is Section 1506, which allows a US court to refuse recognition if it is “manifestly contrary to the public policy of the United States.”
The US Trustee Program (part of the Justice Department) typically opposes cannabis bankruptcy filings, arguing that protecting a federally illegal business violates fundamental US policy. This case was no different. The federal trustee did initially object to the filing, but on March 26, a Delaware bankruptcy judge granted a provisional stay to shield the company’s US subsidiaries from creditor claims. This doesn’t mean the fight is over. The Justice Department could still appeal.
When MedMen Enterprises Inc. filed for bankruptcy in Canada in April 2024, it initially utilized state-level receiverships for its US subsidiaries rather than Chapter 15 recognition. This time around, if the Chapter 15 filing is recognized (meaning the US Trustee Program doesn’t appeal or loses any appeal it files), the company gains a stay that protects its US assets from creditors, which is a major advantage otherwise unavailable to them.
Chances of success for the Cannabist filing
Chapter 15 is an interesting approach. I reached out to attorney Marc Hauser of Cannabis Musings, as well as and North Andover bankruptcy attorney Herb Weinberg. Marc has covered Chapter 15 before, plans on covering this issue in the next installment of his Cannabis Musings newsletter, and is hopeful this could be a successful test case.
Herb, who has represented cannabis-related parties in bankruptcy, is less confident. One was a landlord seeking to stave off a foreclosure action. The real estate owner’s salvation was that a family member formed a cannabis company willing to pay a rental rate sufficient to right side the landlord’s financial problems. The US Trustee took no action, as the cannabis company was seeking a license and did not yet have any cannabis, was funded by family, and consequently had no investments from anyone in the cannabis industry.
In another case, Herb said an individual was seeking to stop the foreclosure of their home. Unfortunately, the person worked for a cannabis company and even though they were not an owner, the US Trustee Program convinced the bankruptcy court that, due to their salary being derived from trafficking proceeds, they could not be considered in a bankruptcy plan as long as the individual worked for a cannabis company.
From a legal perspective, Herb further explained, cannabis is illegal at the federal level. While Chapter 15 is an ancillary proceeding to a bankruptcy filed in another country, its purpose is to allow a foreign company to reorganize its US holdings with the protection of US bankruptcy laws. Those holdings—US-based plant-touching cannabis assets—are still federally illegal. If a federally illegal business (cannabis) is allowed to use Chapter 15, Herb reasoned, a company could theoretically find a foreign jurisdiction where prostitution, or human sex trafficking isn’t illegal, form a business there, and then apply for Chapter 15 protection in the US if their federally illegal US operations came under federal attack.
Herb isn’t very confident the Cannabist Chapter 15 filing will succeed. It isn’t about cannabis, he said, as much as the fact that the company is seeking to apply US laws to reorganize business holdings that the US government deems illegal. That is a very logical analysis of the Cannabist Chapter 15 filing. Alternatively, the trustee may not oppose the liquidation of assets under the bankruptcy code if all cannabis is disposed of before filing (since the facilities remain operational, though, it appears that didn’t happen).
Time will tell whether this side door approach works, or if the door gets slammed in the Cannabist’s face.
