Most commentary on the “hemp ban” included in the November funding bill has focused on two, related considerations: (1) which products and activities will become unlawful on November 12, 2026, and (2) whether Congress will materially amend, or delay, the ban before then. While that focus is understandable, it overlooks a critical, and more immediate, operational and legal consideration for hemp businesses: the availability of federal bankruptcy protection as the deadline approaches.
The November 12 deadline affects many hemp businesses
Although no business wants to contemplate bankruptcy, the November 12 deadline creates a unique inflection point for the hemp industry. After that date, many hemp operators are likely to be operating in violation of federal law. As courts have consistently held, businesses engaged in ongoing violations of federal law (specifically those operating under state legal marijuana frameworks) are generally ineligible for relief under the Bankruptcy Code. In practical terms, post-November illegality could foreclose access to bankruptcy protections for activities conducted after November 12, even if those same businesses were lawfully operating beforehand.
This issue already exists, to some extent, within the hemp industry. Most businesses selling consumable hemp products are currently operating in violation of the Food, Drug, and Cosmetic Act (FDCA). Hemp cultivators and seed distributors, however, are in a materially different position today. (See my earlier blog post on the loophole that still exists with tissue cultures and clones). Cultivators licensed under state programs approved by the USDA are–assuming compliance with those programs–operating in accordance with federal law. As a result, they currently retain access to bankruptcy protections.
That distinction may disappear after November 12, 2026. Unless Congress amends or delays the hemp ban, cultivators and seed distributors who cannot meet the new statutory threshold—0.4 mg of total THC—will find themselves cultivating hemp in violation of federal law. At that point, continued operations could jeopardize their ability to seek bankruptcy relief.
The practical consequence is the risk of a bifurcated bankruptcy scenario. If a hemp business continues operating past November 12 and later seeks bankruptcy protection, a court may distinguish between pre- and post-deadline activities. Operations conducted while the business was compliant with federal law may be eligible for protection, while assets, contracts, and liabilities arising from post-deadline operations may not. This creates substantial uncertainty for creditors, investors, and operators alike, and significantly complicates any restructuring or wind-down strategy.
The need for planning and risk mitigation
There are strategies hemp companies may be able to deploy to mitigate the risks created by the November 12, 2026, deadline, but effective planning must begin well in advance. Whether that planning involves restructuring operations, winding down existing entities, or isolating post-deadline activities into a new entity commencing on November 13, 2026, careful legal analysis will be essential to avoid unintended consequences.
The November 12, 2026, deadline is not merely a regulatory compliance milestone; it is a structural legal dividing line with meaningful implications for insolvency planning. Hemp companies–and particularly cultivators and seed distributors currently operating in compliance with USDA-approved state programs–should assess how the hemp ban could affect their future access to federal bankruptcy protections if federal law remains unchanged. While congressional action could alter this landscape, reliance on potential legislative fixes is not a sound strategy. As the deadline approaches, bankruptcy eligibility may become a critical factor distinguishing businesses capable of executing an orderly restructuring or exit from those that cannot.
For tax-related questions, companies should consult their tax professional. For corporate structuring, regulatory compliance analysis, and evaluation of how the November 12 deadline may impact ongoing hemp operations, we encourage you to contact us. We are also happy to provide a referral to a qualified tax professional if needed.
The post The November 12 Cliff: How the Hemp Ban Threatens Bankruptcy Eligibility appeared first on Harris Sliwoski LLP.
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