Most commentary on the “hemp ban” included within the November funding bill has targeted on two, associated concerns: (1) which merchandise and actions will turn into illegal on November 12, 2026, and (2) whether or not Congress will materially amend, or delay, the ban earlier than then. Whereas that focus is comprehensible, it overlooks a important, and extra speedy, operational and authorized consideration for hemp companies: the supply of federal chapter safety because the deadline approaches.
The November 12 deadline impacts many hemp companies
Though no enterprise desires to ponder chapter, the November 12 deadline creates a novel inflection level for the hemp trade. After that date, many hemp operators are prone to be working in violation of federal regulation. As courts have persistently held, companies engaged in ongoing violations of federal regulation (particularly these working beneath state authorized marijuana frameworks) are typically ineligible for aid beneath the Chapter Code. In sensible phrases, post-November illegality might foreclose entry to chapter protections for actions performed after November 12, even when those self same companies had been lawfully working beforehand.
This challenge already exists, to some extent, inside the hemp trade. Most companies promoting consumable hemp merchandise are presently working in violation of the Meals, Drug, and Beauty Act (FDCA). Hemp cultivators and seed distributors, nevertheless, are in a materially completely different place immediately. (See my earlier blog post on the loophole that still exists with tissue cultures and clones). Cultivators licensed beneath state packages authorised by the USDA are–assuming compliance with these packages–working in accordance with federal regulation. Because of this, they presently retain entry to chapter protections.
That distinction could disappear after November 12, 2026. Except Congress amends or delays the hemp ban, cultivators and seed distributors who can’t meet the brand new statutory threshold—0.4 mg of complete THC—will discover themselves cultivating hemp in violation of federal regulation. At that time, continued operations might jeopardize their capability to hunt chapter aid.
The sensible consequence is the danger of a bifurcated chapter state of affairs. If a hemp enterprise continues working previous November 12 and later seeks chapter safety, a courtroom could distinguish between pre- and post-deadline actions. Operations performed whereas the enterprise was compliant with federal regulation could also be eligible for cover, whereas belongings, contracts, and liabilities arising from post-deadline operations could not. This creates substantial uncertainty for collectors, buyers, and operators alike, and considerably complicates any restructuring or wind-down technique.
The necessity for planning and danger mitigation
There are methods hemp firms might be able to deploy to mitigate the dangers created by the November 12, 2026, deadline, however efficient planning should start properly prematurely. Whether or not that planning includes restructuring operations, winding down present entities, or isolating post-deadline actions into a brand new entity commencing on November 13, 2026, cautious authorized evaluation will probably be important to keep away from unintended penalties.
The November 12, 2026, deadline isn’t merely a regulatory compliance milestone; it’s a structural authorized dividing line with significant implications for insolvency planning. Hemp firms–and notably cultivators and seed distributors presently working in compliance with USDA-approved state packages–ought to assess how the hemp ban might have an effect on their future entry to federal chapter protections if federal regulation stays unchanged. Whereas congressional motion might alter this panorama, reliance on potential legislative fixes isn’t a sound technique. Because the deadline approaches, chapter eligibility could turn into a important issue distinguishing companies able to executing an orderly restructuring or exit from those who can’t.
For tax-related questions, firms ought to seek the advice of their tax skilled. For company structuring, regulatory compliance evaluation, and analysis of how the November 12 deadline could affect ongoing hemp operations, we encourage you to contact us. We’re additionally completely happy to offer a referral to a certified tax skilled if wanted.
