BioSteel Files for Creditor Protection: Will the Budding Change in U.S. Bankruptcy Law Bloom?

A recent Canadian insolvency filing could provide insight into how U.S. courts will approach Chapter 15 applications from foreign cannabis-related entities.

BioSteel Sports Nutrition Inc. (“BioSteel”), a producer of sports nutrition and hydration beverages, obtained relief under the Companies’ Creditors Arrangement Act (the “CCAA”)^[1] on September 14, 2023, after experiencing liquidity issues and significant financial losses within the last fiscal year.^[2] BioSteel operates alongside two closely related entities, BioSteel Sports Nutrition USA LLC (“BioSteel Nutrition”) and BioSteel Manufacturing LLC (“BioSteel Manufacturing”) in order to manufacture, market and distribute their products. While BioSteel Nutrition and BioSteel Manufacturing are not applicants under the CCAA, certain protections have been extended to them. Given BioSteel’s cross-border assets, the company has announced its intention to initiate Chapter 15 proceedings under the United States Bankruptcy Code (the “Code”).^[3]

While filing under Chapter 15 is not uncommon for insolvent Canadian entities with dealings in the U.S., BioSteel’s involvement and connection to the Canadian cannabis industry makes this case one worth following. As discussed in our June 2023 article, U.S. courts have historically denied cannabis debtor companies protection under the Code due to the illegality of selling and manufacturing cannabis under the Controlled Substances Act.^[4] In the proceedings commenced by The Hacienda Company, LLC (“THC”), the court found that THC had only peripheral involvement with the cannabis sector and therefore granted it protection, raising the eyebrows of both the U.S. Trustee (who has since appealed) and legal practitioners on both sides of the border.^[5]

BioSteel’s involvement in the cannabis industry, however, poses a different set of circumstances. Over 90 per cent of BioSteel’s outstanding voting common shares are currently owned by Canopy Growth Corporation (“Canopy”), a global cannabis producer and distributor. Canopy also indirectly owns 100 per cent of BioSteel Nutrition and BioSteel Manufacturing. Canopy has extended significant loans to BioSteel since 2019 and as of September 11, 2023, the indebtedness pursuant to these facilities totalled more than C$366 million. Moreover, all of BioSteel’s employees are employed with either Canopy or Canopy Growth USA, LLC.^[6]

Prior to THC’s proceedings, the future may have looked bleak for BioSteel. However, BioSteel is now well-positioned to serve as the test case for a Chapter 15 application in the wake of a potentially new approach to the cannabis industry, and the U.S. court will have to determine how far the reasoning in THC extends, and to whom.