Key Points

• Chapter 15 offers restructuring pathway for cannabis businesses via foreign (CCAA) proceedings, providing U.S. automatic stay and ancillary relief unavailable under Chapter 11.
• Section 1506 public policy exception narrowly applied; indirect cannabis operations do not make Chapter 15 recognition “manifestly contrary” to U.S. public policy.
• Chapter 15 recognition granted despite federal illegality under the Controlled Substances Act; business type alone is not grounds to deny recognition.

Chapter 15 Recognition

In a ruling with potentially far‑reaching consequences, a U.S. bankruptcy court has opened its doors to a cannabis company.

On May 9, 2026, Judge Brendan L. Shannon of the U.S. Bankruptcy Court for the District of Delaware granted Chapter 15 recognition to The Cannabist Company Holdings Inc., recognizing its Canadian CCAA proceeding as a foreign main proceeding. As we explored in our earlier alert, this case was a legal battle in the making. Now, we have a definitive answer, and the implications are enormous.

Why This Order Is Groundbreaking

This is one of the first times a U.S. bankruptcy court has granted full Chapter 15 recognition to a company whose subsidiaries operate in the cannabis space. East West Bank (EWB), the sole objecting party, argued that recognition was “manifestly contrary to the public policy of the United States” under Section 1506 because the Canadian parent indirectly owns cannabis-selling subsidiaries, a business still technically illegal under the federal Controlled Substances Act (CSA).

In response, the Foreign Representative argued that Section 1506 demands an exceedingly high standard reserved for exceptional circumstances concerning matters of fundamental importance for the United States. As the Third Circuit held in In re ABC Learning Centres Ltd., 728 F.3d 301, 309 (3d Cir. 2013), the public policy exception applies only where the foreign proceeding’s fairness is in doubt or recognition would “‘impinge severely a U.S. constitutional or statutory right.’” Neither was present here. The Canadian proceeding afforded full due process, and the Foreign Representative pointed out that in over 21 years of Chapter 15 filings, only six reported decisions have ever denied relief under Section 1506, none involving a Canadian proceeding, and none based on the debtor’s line of business.

The broader legal landscape bolsters the result. To date, 47 states and the District of Columbia have legalized medicinal cannabis, 24 states plus D.C. have legalized recreational use, and the acting Attorney General issued a final rescheduling order on April 23, 2026, that moves medical cannabis from Schedule I to Schedule III, expressly endorsing state-level licensing systems.

Perhaps most telling: the federal government itself did not object. This stands in stark contrast to the U.S. Trustee’s longstanding practice of moving to dismiss domestic bankruptcy cases filed by cannabis businesses on the ground that cannabis remains federally illegal.

A Lesson in Delaware Practice: The Certification of Counsel

The speed of this order is itself noteworthy. Rather than a full contested hearing, the Foreign Representative filed a Certification of Counsel on May 8, 2026, attaching a revised proposed recognition order that resolved both the UST’s informal comments and EWB’s objection. The certification detailed the procedural history and requested entry “at the earliest convenience of the Court.”

This is classic Delaware bankruptcy practice. Where counsel certifies that objections have been resolved through negotiation, the Court may enter the order without an evidentiary hearing. Here, Judge Shannon entered the Recognition Order the very next day, May 9, 2026. The negotiated resolution included a carve-out reserving EWB’s rights to object to recognition or seek relief from the stay by May 26, 2026, demonstrating how this mechanism can accommodate party-specific concerns while keeping cases moving efficiently.

What This Means for Cannabis Companies

The most consequential takeaway: the nature of a debtor’s business is not a proper basis for denying Chapter 15 recognition. Although Judge Shannon’s unpublished decision carries no formal precedential weight, his ruling, combined with the UST’s silence (if not acquiescence), signals a potential sea change in how cannabis-adjacent companies can access the U.S. bankruptcy system.

The structural reason is simple. Under Chapters 7, 11, and 13, bankruptcy courts have denied relief to cannabis companies on two main grounds: “for cause” dismissal provisions (e.g., 11 U.S.C. § 1112(b)) and the requirement that a plan be “proposed in good faith and not by any means forbidden by law” (11 U.S.C. §§ 1129(a)(3), 1325(a)(3)). Chapter 15 contains neither. Recognition under Section 1517(a) is mandatory, “an order recognizing a foreign proceeding shall be entered” if three requirements are met, and Section 1506’s public policy exception is the only escape valve.

As the Foreign Representative argued, and the Court implicitly accepted, Chapter 15 is not Chapter 11. There is no basis for importing domestic chapter standards into the Chapter 15 framework. And because Chapter 15 only asks U.S. courts to recognize a foreign proceeding and provide ancillary relief, there is no risk of a court or trustee overseeing an estate that directly implicates cannabis operations.

This opens a practical roadmap: initiate insolvency proceedings in a jurisdiction where cannabis is fully legal (like Canada), then seek Chapter 15 recognition in the United States. The payoff is substantial—the automatic stay under Section 362, the ability to continue U.S. operations, and enforcement of foreign court orders protecting assets from creditor actions. The Cannabist Recognition Order granted all of this, plus an injunction against actions inconsistent with the Canadian Initial Order and extension of stay protections to non-debtor subsidiaries.

The Bottom Line

The Cannabist recognition order sends a clear signal: the doors of Chapter 15 are open to cannabis businesses where the foreign proceeding is procedurally fair and the relief sought does not impinge on fundamental U.S. rights.

With federal non-enforcement continuing, medical cannabis now rescheduled to Schedule III, and the Court rejecting the public policy objection, this decision may be the precedent that breaks the logjam for cannabis companies seeking access to U.S. bankruptcy protections. For cannabis operators and their counsel, Chapter 15 now offers a viable restructuring alternative to the hostility these companies have historically faced in domestic proceedings.

For more information, please contact Keith Owens at 424.285.7056 or kowens@foxrothschild.com, Brett Axelrod at 702.699.5901 or baxelrod@foxrothschild.com, or another member of Fox Rothschild’s Financial Restructuring & Bankruptcy Department.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients. Prior results do not guarantee a similar outcome.