Canadian cross-border update: The cannabis restructuring | Latin America | Global law firm

Overview

Canada and the US share a long history of cooperation when it comes to cross-border restructuring. For decades, the legislation of both countries has provided a framework for recognition and the courts in each jurisdiction have shown great deference and reciprocity in facilitating cross-border filings. The reciprocity shown has been at times nuanced, where the local laws of the secondary jurisdiction are more restrictive than in the primary jurisdiction. 

As discussed in greater detail below, a key example of these limitations has been in the case of the cannabis industry where, since 2018, the sale and distribution of cannabis is legal in Canada, but in the US, has not been legalized at the federal level. However, the recent filings of Cannabist Company Holdings Inc. (“Cannabist”) show that there may be a path forward yet for future cross-border cannabis filings in both Canada and the US. 

Cannabis restructuring in Canada

In 2018, the Government of Canada enacted the Cannabis Act, thereby legalizing and establishing the regulatory framework for the production, distribution, sale and possession of cannabis (and related services) in Canada. In addition to the Cannabis Act, several provinces have enacted provincial legislation that also regulates cannabis operations in their provinces. 

After an initial and short-lived boom, by 2019, the cannabis market began to show severe signs of distress and in the past six years, cannabis restructurings under the Companies’ Creditors Arrangement Act (CCAA) in Canada have become commonplace within Canadian restructuring and have not been limited to companies with operations in Canada. Indeed, given the restrictions in the US (discussed below), many operators who operate legally at the state level structure with Canadian parents to access the Canadian public markets. However, until recently, where Canadian parent companies have filed for CCAA protection in Canada, state-level solutions for operations have been limited.

Canada Cannabis restructuring in the US

Cannabis companies in the United States have not historically been able to avail themselves of restructuring under the Bankruptcy Code—until now. For years, most distressed cannabis operators have been forced to rely on state-law alternatives to formal restructurings, out-of court restructurings, and piecemeal asset sales, rather than centralized restructuring proceedings.

Recently, some US courts have permitted cannabis-adjacent entities to remain in US bankruptcy proceedings where the business is adequately removed from federally illegal activity.1 In a landmark ruling on May 9, 2026, Judge Brendan L. Shannon of the US Bankruptcy Court for the District of Delaware granted recognition of the Cannabist Canadian restructuring proceedings, validating the thesis that Chapter 15 constitutes a viable path for domesticating the foreign restructurings of foreign cannabis companies with US operations.2

Cannabist overview

On March 25, 2026, Cannabist filed for CCAA protection in Canada with a view toward seeking recognition of the CCAA proceedings pursuant to Chapter 15.3 Until now, the US bar to Chapter 11 filings had dissuaded financially distressed cannabis entities from pursuing Chapter 15 cases.

The Cannabist US and Canadian filings helped to facilitate the implementation of a sales process, including the purchase of Cannabist’s Ohio and Delaware operations. The Chapter 15 filing also sought to leverage the automatic stay to prevent the IRS from asserting a federal tax lien.4

The Cannabist debtors were limited to Canadian parent holding companies and the cannabis cultivation, manufacturing and retail operations were conducted through separate non-debtor subsidiaries. By structuring the filing in this way, 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.

As for the operating subsidiaries, the automatic stay only applied to the debtor and did not apply to non-debtor affiliates or guarantors—meaning the US operating companies did not benefit directly from the Chapter 15 stay and remained outside the formal scope of the insolvency proceedings.5

Key takeaways from the ruling

In its May 9, 2026 ruling, the US Bankruptcy Court for the District of Delaware granted recognition under Chapter 15 of the Bankruptcy Code to the Cannabist Canadian restructuring proceeding. The court’s findings and order confirmed that all applicable statutory prerequisites had been met:

The Debtors have property in the United States and are eligible to be debtors in a Chapter 15 case pursuant to Sections 109 and 1501 of the Bankruptcy Code.6
The case was properly commenced pursuant to Sections 1504, 1509, and 1515 of the Bankruptcy Code.7
The Canadian Proceeding is granted recognition as a foreign main proceeding as defined in Section 101(23) of the Bankruptcy Code pursuant to Section 1517(a) of the Bankruptcy Code.8

Among the significant protections extended by the recognition order:

The automatic stay set forth in Section 362 of the Bankruptcy Code applies with respect to the Debtors and the Debtors’ property that is within the territorial jurisdiction of the United States.9
All persons and entities are enjoined from seizing, attaching, and enforcing or executing liens or judgments against the Stay Parties’ (as defined in the Recognition Order) property in the United States or from transferring, encumbering, or otherwise disposing of or interfering with the Stay Parties’ assets or agreements in the United States without the express consent of the Foreign Representative, and are enjoined from commencing or continuing any judicial, administrative, or other action or proceeding involving or against the Stay Parties or their assets in the United States.10
All counterparties to a lease of premises or other executory contract that the Debtors or their direct and indirect subsidiaries are party to or guarantor of, in respect of property located within the United States, are prohibited from taking any steps to cancel, terminate, or modify such leases or executory contracts for any reason, including non-payment of rent and/or due to any provision conditioned upon commencement of the Canadian proceeding or a case under the Bankruptcy Code or the insolvency or financial condition of the Debtors or any of their affiliates.11
The administration, realization, and distribution of all or part of the Debtors’ assets within the territorial jurisdiction of the United States is entrusted to the Foreign Representative, who is established as the exclusive representative of the Debtors in the United States.12

Conclusion

Given that US recognition of cannabis restructurings has thus far been limited to Canadian holding companies, it remains to be seen in which instances—and to what extent—US Bankruptcy Courts will extend recognition to Canadian cannabis restructurings more broadly.

Nonetheless, the recognition of Cannabist’s CCAA proceeding under Chapter 15 by the US Bankruptcy Court for the District of Delaware represents a meaningful development in cannabis restructuring law, demonstrating a creative cross-border structure that pairs Canadian CCAA eligibility with Chapter 15 recognition in the United States.