“With rescheduling, it is possible that medical cannabis operations might have similar success filing a chapter 11 in the near future.”
By Michael Brandess and Steve Levine, Husch Blackwell LLP
The cannabis business can be challenging. Margins are often pretty thin. Customers are fickle. And taxes are pretty high. While other industries have similar problems, until the recent rescheduling of medical marijuana, the industry had been completely frozen out of U.S. bankruptcy courts because it was federally illegal, and bankruptcy law is federal law.
To some extent, however, that recently changed.
On March 24, The Cannabist Company Holdings (Canada) Inc. and its U.S. subsidiaries commenced proceedings under the Companies’ Creditors Arrangement Act (CCAA) in Canada, which has similarities to Chapter 11 under U.S. bankruptcy law. The next day, Cannabist initiated a Chapter 15 bankruptcy proceeding in the District of Delaware.
The Cannabist Chapter 15 is the first instance of an operating U.S. cannabis business successfully availing itself of U.S. bankruptcy protections, albeit indirectly through the Canadian proceeding and without the full menu of benefits typically available to companies undergoing Chapter 11.
Chapter 15 of the U.S. bankruptcy code allows for “recognition” of cross-border insolvency proceedings. Recognition occurs when a company
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