Law Firm Warns of Bankruptcy Cliff for Hemp Sector

LOS ANGELES – A warning from a Cannabis law firm has drawn attention to a potential deadline facing parts of the hemp sector: businesses heavily involved in products that could become federally illegal after November 12, 2026, should consider their options for federal bankruptcy protection now, while they remain eligible.

The alert stems from an analysis by attorneys at Harris Sliwoski published on their Canna Law Blog. The firm points out that current federal law allows hemp cultivators and seed distributors operating under USDA-approved state programs to access bankruptcy relief, as their activities comply with federal standards. That status changes under provisions in the Continuing Appropriations Act signed in November 2025, which redefines “hemp” to impose stricter limits on total THC content [including a cap of 0.4 milligrams per container in finished products] and excludes many hemp-derived items with intoxicating potential from the legal hemp category. The changes take full effect on November 12, 2026, as detailed in the bill text.

Once the new definition applies, operators unable to meet the revised thresholds would likely conduct business in violation of federal law under the Controlled Substances Act. Courts have long held that companies engaged in ongoing federal violations [similar to state-legal Cannabis operations] are generally barred from federal bankruptcy proceedings. The Harris Sliwoski post describes this as a “cliff” for eligibility, urging affected businesses to evaluate restructuring, winding down, or other steps well before the date to preserve access to Chapter 11 reorganization or other protections.

Other legal observers have echoed the concern. For instance, a November 2025 alert from Foley Hoag advised distressed intoxicating hemp companies to consider filing for bankruptcy early to use federal tools for reorganization or liquidation before the cutoff increases dismissal risks. Similar points appear in analyses from Greenspoon Marder and others, noting that post-2026 operations could mirror the longstanding barriers faced by hemp and Cannabis businesses.

The provision, part of broader FY2026 agriculture appropriations, aims to address unregulated sales of intoxicating hemp products. Industry groups have criticized the measure as overly restrictive, with some pushing for delay or regulation instead. Congressional Research Service summaries confirm the timeline and scope, including FDA roles in defining related terms.

For hemp enterprises [particularly those in cultivation, processing, or distribution reliant on current product lines] the window for federal bankruptcy as a financial tool narrows with each passing month. Whether Congress acts to modify, delay, or clarify the rules remains uncertain, but the risk of losing bankruptcy safeguards adds urgency to contingency planning in an already challenging market.

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