The Cannabis Illegality Defense Is Back, and It Just Got Sharper Teeth

What the Sixth Circuit's Hello Farms ruling means for cannabis contracts, and why counterparties on all sides of a deal should be paying attention.

On September 10, 2026, the Sixth Circuit Court of Appeals threw out a $31.8 million jury verdict against subsidiaries of Curaleaf Holdings. The court ruled that federal courts cannot enforce a contract to buy and sell marijuana because the plant remains illegal under federal law. The decision, Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, is a major wake-up call for an industry that assumed courts would simply ignore federal law and enforce state-sanctioned deals. 

The legal idea behind the decision is simple: courts will not force anyone to honor an illegal agreement or pay damages for breaking one. If two people agree to rob a bank and split the cash, one cannot sue the other in court for taking more than his share. For years, federal courts largely set this principle aside in cannabis cases. Hello Farms signals that this leniency is fading, at least across Michigan, Ohio, Kentucky, and Tennessee, over which the Sixth Circuit Court has jurisdiction. 

The New Landmark Case: Hello Farms 

In November 2020, Michigan cultivator Hello Farms agreed to sell its entire harvest to Curaleaf subsidiary GR Vending. After taking an initial shipment, GR Vending stopped taking deliveries when local cannabis prices plummeted. Hello Farms sold the rest at lower prices and sued for breach of contract, winning a $31.8 million jury verdict. 

Curaleaf appealed, arguing the contract was unenforceable under the federal Controlled Substances Act. The Sixth Circuit agreed. It rejected the idea, successfully argued in other cases, that asking for money damages instead of forced sales avoids the illegality problem. Paying lost profits on an illegal transaction, said the Court, still enforces the economic value of an illegal deal. 

Ironically, cannabis operators themselves are using federal illegality to dodge their own obligations. Curaleaf, one of the largest operators in the country, won by arguing that its own primary product is a federal felonyand therefore its contracts cannot be enforced. 

Can a Contract Waive the Defense? 

A famous 2022 dispute involving MedMen Enterprises showed just how far this strategy can go. When landlord Thor Equities sued MedMen for nearly $950,000 in unpaid rent on a Chicago storefront, MedMenclaimed the lease was void because renting space for cannabis violates federal law. Crucially, the lease contained a standard industry clause where MedMen explicitly promised not to raise the federal illegality of cannabis as a defense. MedMen asked the court to ignore that promise entirely, arguing that private parties cannot contractually agree to enforce an illegal lease, but the federal court never reached the merits of that argument. It dismissed Thor's suit without prejudice on jurisdictional grounds, and the dispute was ultimately resolved by settlement rather than a ruling on the illegality defense. The episode nonetheless shows that a standard illegality-waiver clause did not stop MedMen from raising the defense, or from seeking to use it as leverage.  

Other Cases Where the Defense Has Worked 

Hello Farms builds on a growing trend of federal and state decisions. In Left Coast Ventures v. Bill's Nursery and Polk v. Gontmakher, federal courts in Washington refused to award equity or future profits in cannabis businesses, ruling that doing so would force the court to oversee federally illegal operations. In J. Lilly v. Clearspan, the judge raised the illegality issue on his own initiative, barring lost-profit damages for a damaged greenhouse. 

State courts are reaching similar conclusions. In BRCC Enterprises v. Skie, a Texas state appeals court overturned a $100,000 verdict tied to an Oregon harvest, showing that state courts can also apply federal law to void contracts. In California, an appellate panel similarly blocked an easement for cannabis transport in JCCrandall v. County of Santa Barbara, though state regulators last year succeeded in getting the opinion “depublished,” therefore not serving as precedent for future cases. 

A More Cautious Middle Ground 

Not all federal courts are taking such a hard line. The Tenth and Third Circuits look closely at the exact outcome requested rather than voiding deals entirely. In Bartch v. Barch, the Tenth Circuit upheld a $6.4 million contract judgment because the defense was not raised early enough but sent the case back to ensure the court did not force an illegal transfer of cannabis stock. In Apical Biotek v. Maitri Holdings, the Third Circuit sent a dispute over genetics and consulting back for further factual investigation rather than throwing it out immediately. 

Other rulings have kept ordinary commercial claims alive. In Mann v. Gullickson, a federal court enforced a promissory note for ancillary business services because collecting money did not require anyone to violate federal law. In Kenney v. Helix TCS, the Tenth Circuit ruled that cannabis security operators cannot use federal illegality to avoid paying overtime under federal labor laws. Furthermore, federal courts have ordered insurers to cover damaged cannabis inventory in Green Earth Wellness, and California state courts routinely enforce standard commercial leases. 

What This Means Going Forward 

The legal landscape is splitting wide open. The Sixth Circuit has set a strict standard, the Third and Tenth Circuits are treading cautiously, and state courts range from strict enforcement to complete invalidation. While states like California, through Civil Code section 1550.5, and Massachusetts have passed laws to protect cannabis contracts, state statutes cannot force a federal court to ignore federal law. 

For operators, landlords, lenders, and investors, contract enforceability can no longer be taken for granted. Federal illegality has become a ready-made escape hatch for parties seeking to back out of unprofitable deals. Contract clauses waiving the illegality defense do not appear to offer any guarantee if a court decides the contract itself is void from the start. 

Going forward, where a dispute gets resolved, whether in state court, federal court, or arbitration, will matter just as much as the agreement itself. Parties entering into agreements must carefully structure venue selections, choice-of-law clauses, and remedies before assuming a signed contract will protect them. 

By David Feldman and Magnolia Mullen. For general information only; not legal advice.