A contract that would be perfectly legal under ordinary circumstances may still be worthless when one cannabis company tries to enforce it against another in federal court.
That is the unsettling implication of a new Sixth Circuit ruling that wiped out a $31.8 million verdict against Curaleaf subsidiaries because the underlying marijuana agreement violated federal law. The court’s reasoning does not make every cannabis contract unenforceable, but it raises a much larger question for operators: Which agreements are enforceable?
The answer could extend far beyond wholesale cannabis sales.
“This case is less significant for the ruling than for the strategic and business considerations it reveals,” Paul Josephson, a partner at Duane Morris LLP, told mg Magazine via email.
A $31.8-million contract disappears
The dispute began with a fairly ordinary commercial arrangement, at least by Michigan cannabis standards.
In November 2020, Curaleaf subsidiaries GR Vending MI and CURA MI entered an output contract with Hello Farms Licensing MI, a licensed Michigan marijuana grower. GR Vending agreed to purchase all of Hello Farms’ 2020 and 2021 harvests, while CURA MI guaranteed the agreement. The parties expected the 2020 crop alone to total 12,000 to 15,000 pounds.
Hello Farms ultimately harvested about 16,300 pounds in 2020. GR Vending accepted roughly 2,000 pounds, but by January 2021 marijuana prices were falling sharply and the company stopped accepting deliveries. Hello Farms sold the remainder of the crop elsewhere at lower prices.
Hello Farms then sued for breach of contract. A federal jury found the Curaleaf subsidiaries liable and awarded the grower $31.8 million. The defendants argued throughout the case that the agreement could not be enforced because marijuana remained illegal under federal law. The trial court rejected that argument, reasoning in part that the contract involved medical marijuana and Congress repeatedly had restricted the Justice Department from interfering with state medical-marijuana programs.
The appellate court held that federal courts cannot enforce an agreement when doing so would enforce conduct prohibited by federal law. Because the contract required Hello Farms to grow marijuana and GR Vending to purchase it, the court concluded the agreement itself rested on activity prohibited by the Controlled Substances Act (CSA). It reversed the judgment without reaching Curaleaf’s other challenges to the amount of damages.
The significance of the ruling, however, is not limited to a grower trying to collect on a broken purchase agreement.
Damages are enforcement, too
The Sixth Circuit’s reasoning goes beyond whether a court can order a cannabis company to perform a contract requiring federally illegal conduct.
Hello Farms argued it was seeking money damages for a past breach, not a court order requiring anyone to grow, sell, or purchase marijuana. The appeals court rejected that distinction. Awarding damages based on the agreement, it said, still would amount to enforcing a bargain whose performance violated federal law.
That is a significant departure from the more pragmatic approach some courts have taken in cannabis disputes.
“It slams the door on the common loophole that awarding money damages is lawful,” Vicente LLP partners Charles Alovisetti and Jeremy Shaw told mg Magazine via email. The Sixth Circuit instead held that damages derived from a federally illegal drug transaction “directly enforce the illicit bargain,” they said.
Many cannabis contract disputes do not involve one party asking a court to compel performance. They involve money: unpaid invoices, lost profits, acquisition payments, licensing fees, revenue shares, loan obligations, or damages after a deal falls apart.
Alovisetti and Shaw read the decision broadly. Although the case arose from a supply agreement, they said the Sixth Circuit adopted a categorical rule against enforcing contracts whose underlying performance violates federal criminal law.
Josephson sees the holding more narrowly. “The ruling itself is not broad,” he said. “It is quite consistent with the approach of most federal courts.”
Where does the line fall?
Direct plant-touching agreements sit at the most obvious end of the risk spectrum.
Commercial offtake and wholesale supply contracts that require parties to buy, sell, cultivate, or transport marijuana are particularly exposed, according to the Vicente partners. Contracts involving adult-use marijuana also remain vulnerable because the activity continues to violate federal law.
But the line becomes much less distinct as agreements move away from the plant itself.
“Aiding and abetting is broadly defined, so a contract even being merely connected to a cannabis business has the risk of being unenforceable in federal court,” Alovisetti and Shaw said. “There isn’t a bright line.”
They nevertheless see a meaningful distinction between contracts whose performance requires a CSA violation and ordinary ancillary agreements. Standard IT, packaging, or security contracts, for example, present less obvious risk because fulfilling those agreements does not require anyone to cultivate, transport, purchase, or sell marijuana.
The Sixth Circuit’s opinion suggests the blast radius may reach considerably further than wholesale sales. In discussing federal illegality, the court pointed to cases refusing to enforce agreements involving investments in marijuana businesses, acquisitions of marijuana companies, cannabis-related services, lost profits from marijuana sales, and equity interests tied to marijuana operations.
Some of those agreements, the court noted, were considerably more removed from the physical purchase and sale of marijuana than the Hello Farms contract.
That raises harder questions about acquisition agreements whose value depends on a cannabis business, licensing royalties tied to marijuana revenue, financing repaid from cannabis proceeds, or management agreements connected directly to cultivation and retail operations.
The ruling does not declare all such agreements unenforceable. But it gives parties seeking to escape them a stronger federal-illegality argument.
The ruling changes leverage, not just enforceability
The most immediate consequence may be that the decision does not affect both parties to a cannabis contract equally.
For a company trying to collect damages after a breach, federal court now presents substantial risk if the agreement requires conduct prohibited by federal law. For the party accused of breaching, federal illegality may become a powerful defense. The imbalance creates obvious strategic leverage for a party looking for a way out of a deal it previously accepted.
Alovisetti and Shaw said cannabis companies should “audit contracts immediately to mandate state-court venue or binding arbitration.”
They added a telling caveat: “Depending on what side you’re on, this [Sixth Circuit ruling] could be a win.”
Josephson sees a potentially steep commercial price for exercising that leverage. A company may escape a judgment by invoking federal illegality, but prospective partners may remember who willingly entered a deal and later argued the bargain couldn’t be enforced.
“When any company asserts illegality to avoid a contract it entered voluntarily, it undermines the trust and confidence that are the foundation of any successful business arrangement,” he said.
Aggressive use of the defense, Josephson said, may scare away prospective partners altogether or cause them to demand higher prices to compensate for the added risk.
The Sixth Circuit acknowledged the underlying tension. Courts historically have recognized the illegality defense can produce a windfall for a party that participated willingly in the prohibited transaction but later failed to perform. Nevertheless, the doctrine exists to protect public policy rather than reward either contracting party.
The Vicente partners recommend exclusive state-court venue clauses partly to reduce federal-court risk. Such provisions do not make the underlying federal-law problem disappear. State judges remain bound by the Constitution’s Supremacy Clause and theoretically could consider a federal illegality defense. But Alovisetti and Shaw said courts in legal-cannabis states routinely enforce cannabis contracts under state law, and they have not encountered a state court invalidating one on federal-illegality grounds.
The principal advantage of an exclusive state-court clause, they said, is preventing a defendant from removing the dispute to federal court.
Contractual waivers of the illegality defense offer another layer of protection, although they are not foolproof. Because the doctrine protects public policy rather than merely the interests of the contracting parties, a court still may disregard a waiver. The Vicente partners nevertheless consider such provisions a transactional best practice because they can help deter bad-faith counterparties and may bind commercial arbitrators.
Josephson is equally emphatic about forum selection. “Every single contract must include clear, unambiguous language requiring disputes be raised only in state court or private arbitration enforced exclusively in state court,” he said.
He also recommended fighting any attempt to remove a cannabis contract dispute to federal court “immediately and vigorously.” In his view, companies should treat enforceability and the availability of meaningful relief as part of contract drafting rather than questions to address only after litigation begins.
But state law creates another complication, particularly for multistate operators.
States including California and Colorado have enacted statutes explicitly protecting the enforceability of contracts involving cannabis activity authorized under their regulatory regimes. Those protections, however, generally are tied to activity licensed within the state. A contract spanning several legal markets may not enjoy the same statutory protection from end to end.
For national cannabis companies, the result is an increasingly fragmented contracting landscape: An agreement may be commercially routine, lawful under the states where the parties operate, and still encounter a fundamentally different enforceability analysis depending on where the dispute lands.
Courts have not spoken with one voice
The Sixth Circuit’s hard line is not the only approach federal appeals courts have taken toward cannabis contracts.
For years, some courts have distinguished between enforcing federally prohibited marijuana activity and granting relief that can be accomplished without requiring anyone to violate federal law. Under that approach, marijuana’s presence somewhere in the transaction does not automatically render every related agreement unenforceable.
The Tenth Circuit embraced that more nuanced view in a 2024 dispute involving ownership of a state-licensed marijuana company. Rather than declaring the underlying agreement categorically void, the appeals court directed the trial court to determine whether simply enforcing the judgment would violate federal law or public policy.
The Third Circuit took a similarly cautious approach in early 2026, remanding a cannabis-related compensation dispute for factual findings about whether the underlying transaction actually involved federally illegal conduct and what effect that should have on enforceability.
The Sixth Circuit now has drawn the line differently. It held that awarding damages on an agreement requiring federally prohibited marijuana activity still constitutes enforcement of the illegal bargain, even if the court never orders anyone to grow, sell, or purchase cannabis.
Alovisetti and Shaw believe the appellate decisions amount to more than factual variations. “We think this is a legit split in terms of federal enforceability of contracts,” they said.
Josephson disagrees. “The decisions arise at vastly different points in each litigation and can largely be reconciled on that basis,” he said.
He sees a different common thread: No litigant should assume a federal court ultimately will grant relief, because an illegality defense can surface even late in the case.
The Vicente partners said a deepening appellate disagreement eventually may require national resolution, although they cautioned the Supreme Court may be reluctant to take another controversial cannabis case.
Josephson is more skeptical. He doubts the justices would take up the issue while federal marijuana illegality remains clear, noting the Supreme Court reserves its limited docket for questions at least four justices consider important beyond a particular industry.
The Court declined in December 2025 to hear Canna Provisions v. Bondi, a much broader challenge asking the justices to reconsider Congress’s authority under the Commerce Clause to prohibit purely intrastate marijuana activity that is legal under state law.
Schedule III does not solve the problem
Moving medical marijuana to Schedule III does not necessarily provide an escape hatch.
The Sixth Circuit said the change, which took place in April, could not retroactively validate the Hello Farms agreement because the contract was illegal under federal law when the parties entered it. More importantly for current operators, the court indicated a comparable medical-marijuana agreement executed today still could violate federal law if the businesses involved lack required Drug Enforcement Administration registrations.
Alovisetti and Shaw see the same dividing line.
Schedule III can improve enforceability for businesses operating exclusively in the medical market and properly registered with DEA, they said. For ordinary state-licensed operators without federal registration, however, they see no meaningful change.
Adult-use agreements remain in an even clearer position: The April order rescheduling medical marijuana to Schedule III did not change adult-use marijuana’s status under federal law.
Josephson also sees purely medical contracts as better positioned after Schedule III, while emphasizing that most industry contracts involve product that ultimately may reach the adult-use market. For those agreements, he said, rescheduling does not solve the federal-illegality problem.
