Delaware Bankruptcy Court Extends Stay to Cannabist’s U.S. Marijuana Subsidiaries in First-of-Its-Kind Case
- The Delaware federal bankruptcy court temporarily extended stay protections to U.S. subsidiaries of The Cannabist Company, marking a potential first for a marijuana company with plant-touching operations.
- The Cannabist Company, undergoing restructuring in Canada under the Companies’ Creditors Arrangement Act, filed for Chapter 15 relief in the U.S. to address cross-border insolvency concerns and requested a halt on actions against its U.S. affiliates.
- Despite objections from the U.S. trustee citing federal law conflicts, the court granted provisional relief, emphasizing Chapter 15 principles related to comity and value preservation in foreign restructuring cases.
- The ruling is notable because it challenges traditional barriers for marijuana businesses in federal bankruptcy proceedings, but key legal issues, including full Chapter 15 recognition and the interplay with federal marijuana law, remain unresolved.
A federal bankruptcy court in Delaware has temporarily extended stay protections to the U.S. subsidiaries of The Cannabist Company, a move that appears to mark a first for a marijuana company with plant-touching operations.
The decision came as Cannabist, a Canadian operator with marijuana cultivation, manufacturing and retail businesses in the United States, works through restructuring proceedings in Canada under the Companies’ Creditors Arrangement Act. After launching those proceedings, the company sought relief in the U.S. Bankruptcy Court for the District of Delaware under Chapter 15, which is used to address cross-border insolvency matters.
As part of that process, Cannabist asked the court to halt actions against its U.S. affiliates while asset sales and wind-down efforts move forward. The U.S. trustee objected, arguing that the Bankruptcy Code does not authorize that type of protection for non-debtors and also raising concerns about notice.
Even so, the court granted provisional relief, temporarily shielding the subsidiaries as the case proceeds. In doing so, the court pointed to Chapter 15 principles tied to comity and the preservation of value in foreign restructuring cases.
The ruling stands out because marijuana businesses directly involved in cultivating, producing or selling marijuana have traditionally been blocked from accessing federal bankruptcy protections. Because marijuana remains illegal under federal law, courts have often dismissed bankruptcy cases involving plant-touching companies, finding that federal judges and trustees cannot be put in the position of administering assets tied to federally prohibited activity.
This case is different because it involves a Canadian restructuring and a request for related relief in the United States, creating a cross-border issue that traditional marijuana bankruptcy cases have not squarely presented. At least for now, the Delaware court determined that the federal status of marijuana did not automatically bar provisional stay relief.
The bigger legal fight may still be ahead. Among the questions left unresolved are whether the Canadian proceeding will ultimately receive full recognition under Chapter 15, how the court will weigh federal marijuana law against cross-border insolvency principles, and whether the stay protecting the U.S. subsidiaries will remain in place as the case moves forward.