Legal Weed, Illegal Contract

Filed Under: Federal Fault Line

---

Michigan licensed the cannabis business. A jury found that one side broke the deal and awarded the grower nearly $31.8 million. Then federal law erased the win.

On September 10, 2026, the U.S. Court of Appeals for the Sixth Circuit reversed the judgment in Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, holding that a federal court could not enforce a marijuana supply agreement built around conduct prohibited by federal law. The ruling did not declare every cannabis contract worthless, but it exposed a problem state legalization has never solved.

A state can license the business. Federal law can still treat the deal underneath it as criminal.

Hello Farms was a Michigan marijuana grower. In November 2020, it entered an agreement with GR Vending MI and CURA MI, both Curaleaf subsidiaries. GR Vending agreed to buy the marijuana, while CURA MI guaranteed the payment obligations.

The contract was not small. The parties expected the 2020 harvest alone to produce 12,000 to 15,000 pounds of marijuana, and GR Vending agreed to pay a $2.2 million deposit. Hello Farms held a Michigan medical marijuana grow license. GR Vending held licenses allowing it to participate in both the medical and recreational markets. The agreement also required the product to satisfy recreational cannabis testing requirements. The Sixth Circuit opinion lays out those terms.

The arrangement fell apart after the initial shipment. According to the Sixth Circuit opinion, GR Vending stopped accepting further deliveries as marijuana prices fell. Curaleaf later told investors that GR Vending took the position that Hello Farms had failed to perform its obligations and that the contract had therefore been terminated. That was the company’s position, not a finding the appeals court needed to resolve. Curaleaf disclosed the dispute in its SEC filings.

Hello Farms sued in Michigan state court in February 2021, seeking lost profits. The defendants moved the case into federal court, where they argued that federal marijuana law made the agreement unenforceable.

The district court rejected that defense and let the case go to trial.

A jury sided with Hello Farms in January 2025 and awarded approximately $31.8 million in damages for breach of contract. In May 2025, the court added about $5.4 million in prejudgment interest, pushing the judgment to roughly $37.2 million, according to Curaleaf’s SEC disclosure.

Then the appeal reached the Sixth Circuit.

The appeals court did not spend its time deciding whether GR Vending had behaved fairly or whether Hello Farms deserved the money. It focused on something more basic: what exactly had the parties agreed to do?

The court’s answer was simple.

“The parties’ agreement was itself illegal.”

The reasoning came directly from the Controlled Substances Act. Hello Farms promised to possess marijuana for distribution and transfer it to GR Vending. GR Vending promised to buy that marijuana and possess it for further distribution or sale. Michigan law allowed the licensed businesses to do those things. Federal law still prohibited them.

The court concluded that awarding Hello Farms lost profits would require a federal court to enforce the very marijuana transactions federal law criminalized. It reversed the district court’s ruling and held that Hello Farms could not recover on the contract in federal court. The opinion makes that reasoning explicit.

That does not mean every agreement touching the cannabis industry is now dead.

The Sixth Circuit drew a line between an agreement that is legal on its face but connected to some unlawful conduct and an agreement whose required performance is itself prohibited. Hello Farms was not suing over an ordinary consulting contract, lease or service agreement that merely happened to involve a marijuana business. It wanted payment for marijuana it had promised to produce and transfer.

The marijuana transaction was the deal.

The ruling is narrower than “cannabis contracts are worthless.” Its practical danger is still substantial.

At least one federal district court outside the Sixth Circuit has allowed a cannabis-related contract claim to proceed when enforcement did not require the court to order illegal marijuana activity. In Mann v. Gullickson, a federal district court in California declined to treat every agreement connected to the marijuana industry as automatically unenforceable.

Hello Farms involved something much more direct: marijuana grown for a buyer and money promised in return.

For operators inside state-licensed markets, that is not an exotic legal problem. It is ordinary commerce.

Growers sell product to processors, retailers and distributors. Businesses negotiate quantity, testing, delivery, payment and quality standards. State regulators issue licenses so those transactions can happen inside a controlled market.

The Sixth Circuit ruling says that when the underlying promise still requires conduct prohibited by federal law, state permission may not be enough to make a federal court enforce the bargain.

That leaves legal cannabis businesses with a brutal question.

What is a contract worth when the party on the other side can argue that federal law makes the deal too illegal to enforce?

The court itself acknowledged how ugly that can look. Hello Farms argued that refusing enforcement would effectively reward the defendants after they had entered the agreement and later invoked federal illegality.

The Sixth Circuit recognized the concern, describing the illegality defense through Supreme Court precedent as “a very dishonest one.” The court still applied it. Judges, the opinion said, were not free to enforce an agreement requiring crimes merely because the outcome looked unfair. The published decision preserves that language.

Federal prohibition stops being abstract when it lands on a balance sheet.

Curaleaf’s subsidiaries had faced a judgment that grew to approximately $37.2 million with interest. After the Sixth Circuit ruling, the foundation for that judgment disappeared. The defendants said after the decision that they were pleased with the result while continuing to support cannabis reform and legalization.

There is no basis to say Curaleaf entered the agreement planning to use federal illegality as an escape hatch later. The record does not establish that motive.

The risk exposed by the case is bigger than one company’s intent.

Federal prohibition can become a defense after a state-legal cannabis deal falls apart.

That possibility becomes even more important because cannabis companies routinely operate under state laws that encourage them to behave like ordinary businesses. They sign contracts, raise capital, insure facilities and report financial obligations. Their regulators expect documentation and compliance. Their investors expect enforceable agreements.

Then a dispute can land in federal court, where the underlying business can suddenly be described in the language of federal crimes.

---

M O R E F R O M P O T C U L T U R E M A G A Z I N E

---

Hello Farms argued that its medical marijuana status should change the result. When the contract was signed, Hello Farms held a Michigan medical grow license. The district court had also relied on federal spending restrictions that have limited the Justice Department’s ability to use appropriated money to interfere with state medical marijuana programs.

The Sixth Circuit rejected that route.

The contract contained no provision limiting the product to the medical market. GR Vending held both medical and recreational licenses, and the agreement required Hello Farms’ product to meet recreational testing requirements. Michigan law also allowed inventory movement from the medical side into the recreational system.

The court therefore treated the agreement as one that reached both markets rather than a medical-only contract. The opinion makes that distinction central to its analysis.

That became especially important after the federal government changed the status of certain medical marijuana activity in April 2026.

The new federal rule moved state-licensed medical marijuana into Schedule III while preserving federal registration requirements. It did not legalize the recreational marijuana market, and the Sixth Circuit said the 2026 change did not save the Hello Farms agreement because the contract was not restricted to qualifying medical activity.

The court went further.

Even if the agreement had been limited to medical marijuana, the judges said the same contract made today would still create a federal problem if the parties lacked the DEA registration required under the new federal framework. Medical cannabis received different federal treatment. It did not receive a blanket exemption from federal controls. The Sixth Circuit addressed that point directly.

Rescheduling changed important parts of federal cannabis law. It did not automatically turn every state medical-marijuana transaction into federally lawful commerce.

Recreational marijuana remains even further outside that protection.

For businesses in Michigan, Ohio, Kentucky and Tennessee, the Hello Farms decision carries particular weight because those states sit inside the Sixth Circuit. The published appellate decision now gives federal courts in that circuit direct precedent for disputes involving agreements that require federally prohibited marijuana transactions.

Inside the Sixth Circuit, the ruling is precedent. Outside it, federal courts may consider the reasoning without being bound by it.

The Sixth Circuit did not issue a national declaration that every cannabis lease, employment agreement, loan or licensing deal can be ignored. It held that federal courts cannot enforce a claim founded on an agreement whose performance required the illegal purchase and distribution of marijuana.

The closer a contract sits to the actual production and transfer of cannabis, the harder that distinction may become to escape.

The ruling also shows why the forum can matter. Hello Farms originally filed in Michigan state court. The defendants removed the dispute to federal court based on diversity jurisdiction.

Once there, the effect of federal illegality became a federal-law question.

That procedural move changed the battlefield.

---

---

It does not follow that every state court would enforce the same marijuana contract. State courts must still deal with federal supremacy and their own contract doctrines. But the Hello Farms case shows that cannabis operators cannot assume a state-issued license guarantees that a federal court will treat the underlying bargain as an ordinary enforceable contract.

The federal contradiction has now produced something the industry can put a dollar figure on.

$31.8 million.

A jury found a breach and awarded the money. With interest, the judgment reached about $37.2 million.

The Sixth Circuit did not erase the jury’s verdict because it concluded no contract existed. It did not decide the appeal by finding Hello Farms had proved too little damage. In fact, after accepting the illegality argument, the court said it did not need to reach the defendants’ other challenges to the damages award.

The judgment fell because federal law still stood underneath the state-law transaction.

As of the ruling, Curaleaf had already been telling investors about the litigation and its potential exposure. Its August SEC disclosure said the company had accrued substantially less than the full potential loss because management believed it had a significant chance of succeeding on appeal. The company also disclosed that the Michigan entities involved had ceased operations in 2023.

The appeal succeeded.

The Sixth Circuit issued its decision on September 10. Hello Farms still has potential avenues for further review, including rehearing or a petition to the Supreme Court, but the published appellate ruling now stands unless it is altered through further proceedings.

The larger business problem does not depend on what Hello Farms does next.

State legalization asks cannabis operators to behave like legitimate businesses. They are expected to sign contracts, pay taxes, follow testing rules and build supply chains that regulators can track.

Federal law can still look at the transaction underneath those contracts and see criminal conduct.

That gap creates risk for everyone signing the paper. It can hurt the grower expecting payment, the buyer expecting delivery and the investor trying to determine whether either promise can survive a serious dispute.

The Sixth Circuit did not create that contradiction.

Congress did.

The court simply put a price tag on it.

Nearly $32 million was enough to take a state-legal cannabis deal through a jury trial and produce a breach-of-contract victory.

Federal prohibition was enough to make the victory disappear.

---

_{^{©2026 Pot Culture Magazine. All rights reserved. This content is the exclusive property of Pot Culture Magazine and may not be reproduced, distributed, or transmitted in any form or by any means without prior written permission from the publisher, except for brief quotations in critical reviews.}}

---

F O R T H E C U L T U R E B Y T H E C U L T U R E