Receiverships and the bankruptcy gap

Why can’t a cannabis business file for bankruptcy?

Bankruptcy is a federal process run by federal officers. A chapter 7 trustee takes possession of the debtor’s property and sells it. A chapter 11 plan pays creditors from the debtor’s future income. When the property is marijuana and the income comes from selling it, both steps would violate the Controlled Substances Act. The United States Trustee Program has consistently moved to dismiss such cases, and courts have agreed, usually under the “for cause” dismissal power or the requirement that a plan be proposed in good faith and not by means forbidden by law.

Nothing in the Bankruptcy Code names marijuana. The bar comes from case law, so its edges move.

The key cases

Case	Court and year	What happened	Why it matters
In re Rent-Rite Super Kegs West	Bankr. D. Colo. 2012	Chapter 11 of a landlord earning part of its rent from a marijuana grower was found subject to dismissal	Early signal that even indirect revenue is a problem
In re Arenas	10th Cir. BAP 2015, 535 B.R. 845	Colorado couple who grew marijuana and leased space to a dispensary could not proceed in chapter 7 or convert to chapter 13	A trustee cannot administer marijuana assets; a plan cannot be funded with marijuana income
Garvin v. Cook Investments NW	9th Cir. 2019, 922 F.3d 1031	Plan confirmed for real-estate companies, one of which leased to a Washington grower	The “not by any means forbidden by law” test looks at how a plan is proposed, not at its terms. Narrow: the dismissal argument had been waived
In re Way to Grow, Inc.	Bankr. D. Colo. 14 December 2018, 597 B.R. 111; affirmed D. Colo. 18 September 2019, 610 B.R. 338	Chapter 11 cases of a hydroponics retailer dismissed for cause because it knowingly sold equipment to marijuana growers; the district court affirmed and the Tenth Circuit appeal was later dismissed after a settlement	Ancillary suppliers are not safe when revenue depends on marijuana growers
In re Hacienda Company	Bankr. C.D. Cal. 2023	Former manufacturer that had sold its operations and was liquidating was allowed to stay in chapter 11	No automatic dismissal; courts may weigh timing and how connected the debtor still is to cannabis
The Cannabist Company Holdings	Bankr. D. Del., 9 May 2026	Chapter 15 recognition of a Canadian CCAA proceeding for a parent with operations in eight states	First recognition of a foreign insolvency involving a U.S. cannabis enterprise

What the Cannabist ruling does and does not do

The Cannabist Company defaulted on about $179 million of senior secured notes in January 2026, began a proceeding under Canada’s Companies’ Creditors Arrangement Act in March 2026, and asked the Delaware court to recognise it. Recognition gives a foreign debtor a stay protecting its U.S. assets without creating a U.S. bankruptcy estate. Its counsel’s argument, as Duane Morris titled it, was that “Chapter 15 is not Chapter 11.”

Limits, according to Morrison Foerster’s analysis:

• The debtors were holding companies. The plant-touching subsidiaries were not debtors.
• A bank creditor objected on public-policy grounds, but the objection was settled. The United States Trustee did not file an objection.
• There was no detailed written opinion, so the precedent is thin.
• It requires a genuine foreign main proceeding. A purely domestic operator with no foreign parent cannot use it.

For most privately owned licence holders, nothing changed.

Does Schedule III change the analysis?

The 28 April 2026 order moved state-licensed medical marijuana to Schedule III. A Schedule III substance is still controlled, and handling it lawfully under federal law requires registration. No reported bankruptcy decision had addressed a medical-only debtor under the new schedule as of mid-September 2026. Adult-use activity remains Schedule I. Treat bankruptcy access for medical operators as untested, and see rescheduling status and what it changes.

What fills the gap

Tool	Who starts it	Court supervision	Stay of creditor action	Typical use
State-court receivership	A secured lender, a partner, or sometimes the regulator	Yes	Only as written into the order	Lender enforcement, ownership disputes, going-concern sale
Assignment for the benefit of creditors	The company	Varies by state; often none	None	Faster, quieter liquidation with a cooperative board
Out-of-court workout	Company and creditors	None	By agreement only	Few creditors, one dominant lender
Chapter 15	Foreign representative	Yes, limited	Yes, for U.S. assets	Canadian-listed parents only

Each process is covered in depth elsewhere: cannabis receivership sales explained, assignment for the benefit of creditors, and wind-down vs sale. Three points belong here because they come from the regulatory side:

1. The receiver must be acceptable to the cannabis regulator. In In re Marriage of Humphrey (Colo. App. 2018), a Colorado court held that a receiver operating a marijuana business needs the state licences any operator would need. In Massachusetts, the 2023 Ermont receivership required Cannabis Control Commission approval of the receiver. Several states now have specific notice or approval rules for receivers.
2. A court order does not transfer a licence. The receiver can sell the business, but the buyer still goes through change of ownership approval. In Michigan, for example, practitioners describe the receiver and the buyer working through the Cannabis Regulatory Agency’s transfer process after the court approves the sale.
3. Taxes survive. Without a bankruptcy discharge or a federal free-and-clear sale, tax liens and successor-liability claims have to be dealt with at closing. See tax-lien priority in cannabis sales.

What the gap means in a transaction

For owners in trouble. There is no filing that stops the clock. A lender can seek a receiver, the landlord can terminate, and the state can decline to renew a licence for unpaid taxes. The licence is usually the most valuable asset and it is lost if it lapses. That argues for selling early, while the owner still controls the process. See selling a cannabis business in distress.

For lenders and seller-note holders. Remedies are slower and less certain than in other industries, and a lender cannot simply take over a licence. This is one reason cannabis debt is expensive. The mechanics are in seller notes and security interests.

For buyers. Receivership sales can produce low prices, but the buyer takes more risk on liens, taxes, and approval than in a bankruptcy sale. Diligence and price should reflect that. See buying a license out of receivership.

For ancillary and hemp businesses. Bankruptcy may be available, but expect scrutiny of how much revenue depends on marijuana, as Way to Grow shows.

This page is an educational summary of case law, not legal advice. Insolvency options depend on the state, the capital structure, and the regulator.