Category: Regulatory Compliance

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Controlled Substance Act Employment Issues Regulatory Compliance

Tip-Pooling in Cannabis Dispensaries: Be Wary of Managers and Supervisors

Carmen F. Francella III —


For budtenders, tips earned in a dispensary can add up to hundreds of dollars per week. However, how that money is pooled and divided is critical for a dispensary operator to understand. Managers and supervisors, be wary.

1. What Is a Tip Pool?

Tip pooling in a dispensary is the practice of taking gratuities received from patrons and customers and pooling either all or part of them to be distributed among employees. It is a routine practice in restaurants and other places where an employee is serving a patron or customer. Because cannabis remains illegal at the federal level, major credit card networks—including Visa, Mastercard, and American Express—do not process transactions for cannabis retailers. As a result, these businesses operate predominantly on a cash basis, which often leads to substantial cash tips for budtenders. Tip pools in a dispensary are generally limited to employees in occupations in which they customarily and regularly receive tips, such as budtenders who provide service directly to a patron or customer and who do not have managerial responsibilities. Failure to carefully implement a legal tip pooling policy can have disastrous results because all of the dispensary’s tipped employees may have a claim if the tip pool is improperly administered.

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Controlled Substance Act Legislation Regulatory Compliance

Virginia’s Cannabis Crossroads: Governor Spanberger’s Veto Leaves the Adult-Use Market in Limbo

Tyler K. Buchholz —

Five years after Virginia became the first state in the South to legalize adult-use cannabis possession, residents still cannot legally purchase it. In a stunning reversal that has sent shockwaves through the cannabis industry, Governor Abigail Spanberger vetoed a pair of bills on May 19, 2026, that would have finally launched recreational cannabis sales in the Commonwealth—bills she had once pledged to sign.

From Campaign Pledge to Veto

The road to this moment has been defined by frustration and false starts. When Spanberger, a Democrat, won the governor’s mansion last November, she campaigned on an explicit promise: if state lawmakers sent her an adult-use sales bill, she would sign it. That promise was significant because her Republican predecessor, Glenn Youngkin, had repeatedly vetoed cannabis sales legislation during his tenure. For cannabis operators, advocates, and consumers alike, Spanberger’s election seemed like the breakthrough Virginia had been waiting for.

The General Assembly moved quickly, passing legislation earlier in the spring that would have launched sales on January 1, 2027. Key provisions of the assembly’s bill included a state tax rate of six percent with an additional local option of up to 3.5 percent, and a cap of 350 retail licenses statewide. Under the plan, Virginia’s five existing vertically integrated medical cannabis operators would have been eligible to enter the adult-use market upon payment of a $10-million conversion fee.

The Governor’s Counteroffer—and Its Collapse

Rather than sign the bill as presented, Spanberger sent it back to the legislature with a package of amendments that significantly altered the framework. Her revisions pushed the launch date to July 1, 2027; cut the retail license cap to 200 until at least January 1, 2029; imposed a cultivation cap of 70,000 square feet for vertically integrated processors; introduced an automatic tax increase to eight percent by July 2029; and banned butane extraction outside of commercial manufacturing facilities.

Most controversially, the governor’s amendments included new criminal penalties—a provision that advocates argued would disproportionately affect people of color and undermine the equity goals that had been central to legalization.

Cannabis industry lobbyists, including representatives of major multistate operators holding Virginia’s existing medical permits, advocated for lawmakers to reject the governor’s amendments. And reject them they did. Virginia lawmakers turned down Spanberger’s proposed changes on April 22, 2026, sending the original bill back to her desk. With only a two-seat majority in the state Senate, Democrats lacked the votes to override a veto. The governor faced a binary choice: accept the legislature’s framework or veto the bill entirely. She chose the veto.

Why Spanberger Says She Vetoed the Bill

In a statement accompanying the veto, Spanberger emphasized the need for strong regulatory oversight; clear enforcement authority; and sufficient resources for compliance, testing, and inspections. She also stressed the importance of “robust tools to crack down on bad actors who continue to profit from the illicit market.”

At an event two days later, on May 21, Spanberger elaborated on her reasoning. She argued that standing up a fully regulated retail market between July 2026 and January 2027 was a “rushed time frame.” She also reiterated her discomfort with 350 cannabis stores—the cap in the legislature’s bill—calling it “far more” than she was willing to accept.

The governor cited the experiences of other states, saying her team had “engaged with other states, and other governors … to make sure we could learn from some of the challenges that other states have faced.” She referenced avoiding “the mistakes of other states that have either rushed, or even thinking that they got it right on a methodical path,” though she did not identify which states or which mistakes she was referring to.

That ambiguity has drawn skepticism. Ohio launched adult-use sales in August 2024, less than a year after voters legalized it, and Maryland did so in July 2023—neither state has drawn widespread industry criticism for moving too fast. Meanwhile, New York’s notoriously slow rollout, which Governor Kathy Hochul herself described as “botched,” has been the target of far more industry frustration than any state accused of launching too quickly.

The Fallout: A Billion-Dollar Market on Hold

The financial stakes of the veto are enormous. According to projections, Virginia adult-use cannabis sales could reach $780 million in the first full calendar year of legal retail, with the billion-dollar milestone possible by the second year. Without a sales law, that economic potential remains entirely theoretical.

The immediate impact is already being felt. One multistate operator active in Virginia told the Washington Business Journal that a $50-million expansion plan and plans to hire “hundreds” of new workers have been put on hold.

State Senator Lashrecse Aird captured the frustration of many lawmakers and advocates in a statement responding to the veto: “Once again, Virginia’s efforts to establish a safe, regulated and equitable adult-use cannabis marketplace has been halted despite years of work, public input and broad recognition that status quo is failing Virginians.” She warned that the governor’s decision “leaves the Commonwealth exactly where we have been since 2021: with an unchecked illicit market hurting our communities, harming our youth and putting adults at risk.”

What Comes Next?

There is a narrow path forward. A cannabis sales framework could still become law through the state budget process, with a deadline of July 1, 2026. But if that window closes, legal adult-use sales in Virginia may not begin until 2028 or beyond.

For now, Virginia remains in a paradox of its own making: a state where adults can legally possess cannabis but have no legal means to buy it. The illicit market continues to fill the void, and the regulatory framework that Spanberger insists must be perfect before any store opens remains, for the moment, nothing more than an aspiration.

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Banking and Restructuring Controlled Substance Act Regulatory Compliance

Blazing New Ground: Cannabis Holding Company Obtains Chapter 15 Recognition

Scott H. Moskol, Evan Jason Zucker, and Michael B. Schaedle —

Introduction

The cannabis industry has been undergoing a significant wave of defaults and receivership proceedings in recent years. Faced with price compression and increased competition including from the illicit market, limited access to traditional sources of debt and capital markets, and compressed margins, many cannabis companies have found themselves unable to service their debt obligations. The Cannabist Company Holdings Inc.’s (“CCHI”) restructuring is emblematic of these broader industry challenges and provides a potential new roadmap for other cannabis enterprises navigating similar financial distress.

On May 9, 2026, the United States Bankruptcy Court for the District of Delaware entered an order granting recognition of the Canadian insolvency proceeding of CCHI and The Cannabist Company Holdings (Canada) Inc. (collectively, the “Debtors”) as a foreign main proceeding under Chapter 15 of the Bankruptcy Code. This decision is the first time a U.S. bankruptcy court has recognized a foreign insolvency proceeding involving a cannabis-related business under Chapter 15, notwithstanding the continued federal prohibition of adult use cannabis under the Controlled Substances Act (“CSA”). Importantly, the entities that obtained recognition are not the “plant-touching” cannabis operating companies. The subsidiaries that hold state licenses and directly produce, sell, and handle cannabis are not debtors in either the Canadian proceeding or the Chapter 15 cases.

This recognition, coupled with the recent rescheduling of medical cannabis from a Schedule I to a Schedule III controlled substance under the CSA, marks a significant shift in the federal posture toward the cannabis industry. Together, these developments open the door to new forms of relief under the Bankruptcy Code for cannabis-related businesses, which have historically been denied access to federal bankruptcy protection.

Background: The Cannabist Company and Its Restructuring

The multi-state operator (“MSO”), CCHI is a Canadian holding company publicly traded on the Cboe Canada Inc. stock exchange, and the ultimate parent of non-debtor subsidiaries that operate a vertically integrated cannabis cultivation, manufacturing, and retail business in eight U.S. states where medical or adult-use cannabis is legal under state law. The debtors, along with their non-debtor’s subsidiaries (the “CC Group”) have a capital structure that included approximately $220 million in funded debt, primarily consisting of approximately $179 million in senior secured notes issued under a Canadian-law-governed indenture. The CC Group incurred net losses of $105.1 million for the 12 months ended December 31, 2024, and $124.2 million in net losses for the nine months ended September 30, 2025.

Following a default on the Senior Notes in January 2026, the CC Group entered into a forbearance agreement with a majority of senior noteholders and subsequently commenced a Companies’ Creditors Arrangement Act (“CCAA”) proceeding in the Ontario Superior Court of Justice (Commercial List) on March 24, 2026. On March 25, 2026, CCHI, acting as the duly appointed foreign representative, filed Chapter 15 petitions in Delaware, seeking recognition of the Canadian proceeding and enforcement of the Canadian court’s initial order.

Read the full client alert on our website.

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Banking and Restructuring Controlled Substance Act Legislation Regulatory Compliance

DOJ Final Order Rescheduling Marijuana: Key Implications, Guidance, and Opportunities for State-Licensed Medical Cannabis Businesses

Frank A. Segall, Scott H. Moskol, and Shane A. Pennington —

On April 23, 2026, the U.S. Department of Justice (“DOJ”) reached a historic milestone in federal cannabis policy when Acting Attorney General Todd Blanche signed a final order transferring Food & Drug Administration (“FDA”)-approved marijuana products and all cannabis subject to a state medical marijuana license from Schedule I to Schedule III of the Controlled Substances Act (“CSA”).

For patients, providers, operators, lenders, investors, and virtually everyone involved in this industry, this marks one of the most significant federal cannabis developments in decades. The order takes effect immediately and creates a new pathway for state-regulated medical marijuana businesses to operate in compliance with both state law and federal controlled substances law for the first time in history. 

Although the order does not currently address recreational cannabis, its impact on the industry is significant. Blank Rome is committed to guiding clients through these policy changes and helping them leverage emerging opportunities in the sector, which we believe will further benefit the industry as a whole. Here are the significant highlights and impacts of the policy change. 

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Banking and Restructuring Controlled Substance Act Legislation Meet Blank Rome Regulatory Compliance

President Trump Officials Reclassify Marijuana in Historic Announcement

Frank A. Segall —

A statement from Frank A. Segall, Chair of Blank Rome’s Cannabis Industry Group:

The Trump Administration’s move on the rescheduling of cannabis is long overdue and monumental. It recognizes the importance of further legitimizing the health and wellness benefits of this miracle plant, allowing research and clinical trials to advance, and expanding access for those who may benefit from its medicinal properties.

However, meaningful and equitable access for all Americans, and fair treatment of the industry comparable to that extended to all other businesses, will only be achieved with full rescheduling of cannabis.

Blank Rome’s Cannabis Industry Group has been at the forefront of the cannabis industry for almost 15 years, successfully and innovatively helping its clients navigate the regulatory complexities that have long challenged cannabis businesses. This order moves us in the right direction, but it does not get us there entirely. 

Blank Rome is committed to assisting its clients and the cannabis industry in navigating through this order, addressing its complexities, and continuing to advocate for full rescheduling.

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Banking and Restructuring Controlled Substance Act Interviews Legislation Regulatory Compliance

What Cannabis Lenders Think Rescheduling Will Mean for Capital Markets

Gustav Stickley V —

The prospect of federal rescheduling of cannabis has the lending community buzzing. We recently sat down with Alex Mazza, Director of Underwriting at Chicago Atlantic Group, as well as Michelle Haughton and Bobby Boyda of Needham Bank, to get their take on what rescheduling could mean for borrowers, lenders, and the broader capital markets.

Stronger Borrowers, Bigger Demand

One of the most immediate effects lenders anticipate is a meaningful improvement in borrower credit profiles, particularly for operators with retail operations. With the burden of Section 280E potentially lifting, operators should see more available cash on their balance sheets, thus deepening the pool of eligible borrowers. Mazza emphasized that this will drive increased demand for capital—but crucially, not an immediate increase in capital supply. In his view, new lenders are unlikely to rush into the industry given cannabis’ continued federal illegality and the robust internal processes required to set up a cannabis lending program.

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Banking and Restructuring Controlled Substance Act Legislation Mergers and Acquisitions Regulatory Compliance

Distressed Cannabis Sale-Leaseback Companies: What Investors and Operators Need to Know

Marc A. Polito —

The cannabis industry has experienced dramatic highs and lows over the past several years. While legalization efforts have expanded markets across the United States, many cannabis companies have found themselves in severe financial distress, burdened by high operating costs, regulatory complexity, and limited access to traditional financing. One area that has drawn particular attention is the sale-leaseback model—a once-promising financing structure that has become a source of significant stress for both operators and the real estate companies and equipment lessors that serve them. Here’s a breakdown of the top four things to know about the use of sale-leasebacks in the cannabis industry.

1. Understanding the Real Estate Sale-Leaseback Model in Cannabis

A sale-leaseback transaction involves a cannabis operator selling its real property—such as a cultivation facility or dispensary location—to a third party or affiliate real estate investment company, then leasing that same property back under a long-term lease agreement. For the operator, this arrangement frees up capital that would otherwise be locked in real estate, providing much-needed liquidity to fund operations, expansion, or debt repayment. For the buyer, typically a real estate investment trust or similar entity, the arrangement provides a steady stream of rental income backed by a tangible asset.

This model gained traction in the cannabis space largely because of federal illegality under the Controlled Substances Act, which left cannabis companies cut off from conventional bank lending and capital markets.

Sale-leasebacks offered a creative workaround, enabling operators to monetize their real estate holdings without relying on traditional debt instruments.

2. Equipment Sale-Leasebacks: A Parallel Structure

While real estate sale-leasebacks have received much of the attention, equipment sale-leasebacks have played an equally important role in cannabis financing. Under this structure, a cannabis operator sells specialized equipment—such as extraction machines, HVAC systems, lighting arrays, or processing machinery—to a third party or affiliate financing company, then leases that equipment back for continued use. Like its real estate counterpart, the equipment sale-leaseback provides operators with immediate liquidity while allowing them to retain operational use of critical assets.

However, equipment sale-leasebacks carry their own distinct risks. Cannabis equipment is often highly specialized, meaning its residual value outside the cannabis industry can be minimal. If an operator defaults on its lease payments, the financing company may be left holding equipment that is difficult to redeploy or resell at a reasonable price. Additionally, equipment depreciates far more rapidly than real estate, which can create a mismatch between the outstanding lease obligations and the declining value of the underlying asset. These dynamics have left many equipment leaseback companies in a precarious financial position as operator defaults have increased across the industry.

3. Why Distress Has Emerged

Despite initial optimism, several factors have converged to place sale-leaseback companies under significant financial pressure.

  • First, cannabis commodity prices have declined sharply in many mature markets, driven by oversupply and aggressive competition. As operator revenues have fallen, many lessees have struggled to meet their lease obligations, leading to rising delinquencies and defaults across both real estate and equipment leases.
  • Second, the real estate and equipment financing companies themselves often underwrote these transactions based on optimistic projections about the cannabis market’s growth trajectory. When those projections failed to materialize, the underlying economics of many deals became unsustainable. For example, real estate properties that are acquired at premium valuations tied to cannabis use can be difficult to repurpose for other commercial uses whether due to current outfitting of the location or as a result of local zoning laws, and specialized equipment can hold even less residual value outside the cannabis industry, leaving both landlord and lessors with impaired assets and limited options.
  • Third, the broader macroeconomic environment has compounded these challenges. Rising interest rates have increased the cost of capital for real estate companies and equipment lessors, while simultaneously depressing asset valuations. For sale-leaseback companies that relied on leverage to fund acquisitions of real estate and equipment, this has created a painful squeeze on balance sheets. What we have seen is a trend toward sale-leaseback companies defaulting under their own debt obligations used to finance the acquisition of real estate and equipment due to their underlying portfolio tenants and lessees defaulting under respective lease agreements.

4. Implications for Stakeholders and Operators

For cannabis operators, the distress of their sale-leaseback landlords can create its own set of complications. A landlord in financial difficulty may be unable to fund required maintenance or capital improvements under the leases, and as a result, may seek to renegotiate lease terms, or may face foreclosure proceedings that introduce uncertainty into the operator’s occupancy rights.

For investors and creditors of sale-leaseback companies, the path forward often involves difficult decisions around restructuring, asset disposition, or recapitalization. In some cases, distressed sale-leaseback portfolios have attracted opportunistic buyers looking to acquire cannabis-linked real estate at a discount.

The distressed cannabis sale-leaseback space serves as a cautionary tale about the risks of sector-specific financing models built on speculative market assumptions. As the industry continues to mature, stakeholders would be well served by approaching these structures with clear-eyed diligence and realistic expectations about the market’s trajectory.

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Banking and Restructuring Controlled Substance Act Interviews Legislation Meet Blank Rome Mergers and Acquisitions Regulatory Compliance

Cannabis Rescheduling: Will the Vault for Cannabis Banking and Financial Services Finally Be Opened?

Scott H. Moskol and Lauren Medeiros Forster —

Whether you are a cannabis operator, lender, or investor, you have probably been hearing a lot of buzz about the potential rescheduling of cannabis from Schedule I to Schedule III under the federal Controlled Substances Act, especially following President Trump’s recent executive order directing federal agencies to initiate the process of rescheduling marijuana and reviewing related regulations. It is an exciting development, and there is plenty of reason for optimism, but let’s take a look at what this shift could change (and likely not change) when it comes to banking, lending, and financial services in cannabis.

  1. The Banking Landscape: Evolution, Not Revolution

It is likely that rescheduling cannabis to Schedule III will not dramatically change what banks are presently required to do under the Bank Secrecy Act (the “BSA”) and the 2014  FinCEN guidance on banking marijuana-related businesses. These BSA-related compliance obligations (i.e., the enhanced due diligence, suspicious activity reporting, and monitoring requirements) will not vanish as a result of rescheduling. Banks will still need to navigate a complex regulatory and compliance environment, and if you are a financial institution already working with cannabis operators or you are a cannabis business already working with a financial institution, your day-to-day relationship will not change.

What the industry is hoping for, however, is that rescheduling will prompt federal regulators to issue amended or entirely new guidance on how banks can engage with the cannabis industry. That kind of updated regulatory framework could open doors to more streamlined processes and potentially reduce some of the friction that has defined cannabis banking for years but more importantly bring in new financial institutions providing banking and lending services to the industry. Eyes should be kept on Treasury and the banking regulators—their next moves will matter once cannabis is rescheduled.

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Controlled Substance Act Legislation Meet Blank Rome Regulatory Compliance

2025 Wrap-Up: Historic Cannabis Rescheduling

Blank Rome’s Cannabis Practice Applauds Milestone EO and Anticipates Continued Developments and Opportunities in 2026

Frank A. Segall and Shane A. Pennington —

President Trump recently signed Executive Order “Increasing Medical Marijuana and Cannabidiol Research,” published on December 18, 2025. This important measure directed federal agencies to reclassify cannabis from Schedule 1 to Schedule 3 under federal law, marking a major step forward for medical research, patient access, and the broader cannabis industry.

In recognition of this milestone, we would also like to acknowledge entrepreneur and philanthropist, Howard Kessler, for his visionary leadership and commitment to expanding medical cannabis access for seniors through The Commonwealth Project, which aligns with this significant occasion.

“We congratulate Howard Kessler on his vision, perseverance, and critical involvement in advancing medical cannabis access for senior healthcare through The Commonwealth Project, which resulted in President Trump’s historic Executive Order rescheduling cannabis from Schedule 1 to Schedule 3. Howard Kessler championed a cause and became its champion,” said Frank A. Segall, partner and co-chair of the Cannabis practice.

Following this Executive Order, Blank Rome’s Cannabis team has been actively engaging with the media, providing insights and analysis on the implications of rescheduling cannabis.

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Controlled Substance Act Legislation Meet Blank Rome Regulatory Compliance

Blank Rome Poised to Guide Clients Through Marijuana Rescheduling

Shane A. Pennington, Frank A. Segall, and Scott H. Moskol —

As the cannabis industry anticipates a significant executive order that could reschedule marijuana from Schedule I to Schedule III, Blank Rome’s Cannabis industry group is ready to guide clients with strategic insight and timely advice. Regulatory authority and Blank Rome partner Shane A. Pennington, with the support of Cannabis industry group co-chairs Frank A. Segall and Scott H. Moskol, have been directly involved in addressing the Department of Justice’s proposal for rescheduling marijuana on behalf of our clients. Encouraging updates continue to emerge daily, and we believe an executive order authorizing this change will be issued soon.

Shane, Frank, Scott, and Blank Rome’s team of cannabis attorneys are at the cutting edge of industry trends, closely following and influencing policy developments in Washington, D.C. The Cannabis industry group is dedicated to keeping our clients updated in real time, helping you act swiftly and take advantage of new possibilities arising from this historic development.

Once a clear path is set by executive order, our team will host a series of meetings and webinars to help clients navigate the evolving regulatory landscape and maximize the benefits of rescheduling. Building on our longstanding leadership at the forefront of the cannabis industry, our deep knowledge of legal and regulatory issues enables us to guide clients through emerging changes, so they can confidently navigate and benefit from the evolving market.

As you prepare for this transformative moment in the industry, trust Blank Rome to be your partner every step of the way. For questions or to learn more about our services, please contact us.