A $31.8 million cannabis-related verdict that a federal court wouldn’t enforce
A Michigan cannabis grower proved its case. A jury found that the buyer breached its supply agreement and awarded the grower $31.8 million in damages. But the grower still walked away without an enforceable verdict.
In Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, the U.S. Court of Appeals for the Sixth Circuit reversed the judgment because the contract required the parties to engage in conduct prohibited by the federal Controlled Substances Act (“CSA”). The court held that a federal court could not enforce the agreement, despite Michigan law authorized the underlying cannabis activity.
The September 10, 2026, decision is not binding on California state courts or federal courts in the Ninth Circuit. Nevertheless, it offers an important warning for cannabis operators nationwide: A contract that is valid under state law may still be unenforceable in federal court.
The contract and breach
Hello Farms is a licensed Michigan cannabis cultivator. In November 2020, it entered into an output contract with GR Vending MI, LLC and CURA MI, LLC, both subsidiaries of Curaleaf Holdings, Inc. GR Vending agreed to purchase all cannabis grown by Hello Farms during its 2020 and 2021 harvests, while CURA MI guaranteed GR Vending’s obligations.
When the parties signed the agreement, Hello Farms held licenses to grow medical cannabis. GR Vending held both medical and adult-use retailer licenses.
The parties expected Hello Farms’ 2020 harvest to yield between 12,000 and 15,000 pounds of cannabis. GR Vending also agreed to pay a $2.2 million deposit, subject to refund under specified circumstances.
The agreement contained detailed testing requirements. Hello Farms had to test each 50-pound batch for THC potency and contaminants such as pesticides and heavy metals. Importantly, the contract required the marijuana to satisfy state and local recreational cannabis testing requirements.
Hello Farms ultimately produced approximately 16,300 pounds in 2020. The cannabis passed the required testing, and GR Vending accepted an initial shipment of roughly 2,000 pounds.
Then market prices fell.
GR Vending refused to accept additional deliveries. Hello Farms sold the remaining 2020 harvest to another buyer at lower prices. It also expanded its cultivation operation for 2021, obtained adult-use cultivation licenses, and sold that year’s production to the same alternative buyer.
From state court to federal court
Hello Farms sued for breach of contract in Michigan state court in February 2021. The defendants were able to move the case to the U.S. District Court for the Eastern District of Michigan based on diversity jurisdiction.
That procedural move would become critical.
The defendants asserted that the agreement was illegal under federal law and therefore unenforceable. The district court rejected that defense at summary judgment, and the case proceeded to trial.
The jury found that the defendants breached the contract and awarded Hello Farms $31.8 million. The defendants renewed their request for judgment as a matter of law, but the district court again rejected the federal-illegality defense.
The district court reasoned that the agreement concerned medical cannabis and that the Rohrabacher-Farr appropriations rider reflected a federal policy of tolerating state-compliant medical cannabis activity. The defendants appealed.
Why the verdict became unenforceable
The Sixth Circuit reversed.
As the court explained, federal courts generally apply state substantive law when exercising diversity jurisdiction. But the effect of illegality under a federal statute is a question of federal law. A federal court must therefore determine whether enforcing an agreement would enforce the precise conduct that Congress made unlawful.
That principle proved fatal to Hello Farms.
In the Court’s view, the agreement required Hello Farms to possess cannabis with the intent to distribute that cannabis to GR Vending and enable GR Vending to possess it for further distribution or sale. Each step implicated conduct prohibited by the CSA unless federally authorized.
The court distinguished between a lawful economic transaction that contains an incidental illegal provision and a contract whose central performance is itself federally prohibited. Hello Farms’ agreement fell into the second category because the purchase and distribution of cannabis were the core of the bargain.
The court consequently refused to enforce the defendants’ promise to pay for that performance. It reversed the district court’s denial of judgment as a matter of law, eliminating the prior verdict and Hello Farms’ recovery.
Money damages were no solution
Hello Farms argued that it was not asking the court to order anyone to grow, deliver, or purchase cannabis. The company sought money damages for a transaction that should have occurred years earlier.
The Sixth Circuit found that distinction unpersuasive.
Hello Farms’ lost profits arose from, and were measured by, the defendants’ promise to purchase cannabis. Awarding damages would therefore give Hello Farms the economic benefit it expected from the federally prohibited transaction.
According to the court, federal illegality is not limited to cases seeking specific performance. A court also may refuse to award expectation damages when the plaintiff’s claimed recovery depends on enforcement of the unlawful bargain itself.
This is one of the decision’s most significant lessons. Simply drafting a monetary remedy does not necessarily insulate a cannabis agreement from federal illegality. If the damages represent the profits expected from cannabis cultivation or sales, a federal court may conclude that awarding those damages would indirectly enforce the prohibited performance.
The opinion does not, however, resolve every potential claim involving a cannabis business. It does not hold that federal courts must reject every dispute involving consulting services, intellectual property, real estate, equipment, loans, restitution, or other obligations connected to the industry. The closer the claim is to direct cultivation, possession, purchase, or distribution, the greater the apparent risk under the Sixth Circuit’s reasoning.
Marijuana rescheduling didn’t save the contract
The fact the federal government moved state-legal medical marijuana to Schedule III earlier this year also failed to rescue Hello Farms’ verdict.
The Sixth Circuit explained that the federal change occurred years after the parties entered the contract. Nothing in the rescheduling rule made the change retroactive or transformed the parties’ 2020 agreement into a federally lawful transaction.
The court also noted that Schedule III does not eliminate federal regulatory requirements. State-licensed medical-cannabis businesses may still need DEA registration and applicable FDA approval to cultivate, distribute, or introduce cannabis products into interstate commerce lawfully.
Rescheduling therefore does not mean that every state-licensed cannabis transaction is now federally legal. Whether a particular agreement is enforceable may still depend on when it was executed, the products and markets it covers, the parties’ registrations, and the federal rules applicable to performance.
What California operators should do
The Sixth Circuit’s opinion is not controlling precedent in California or the Ninth Circuit. California courts may analyze contract illegality and public policy differently, and the enforceability of any agreement will depend on its terms, claims, remedy, and forum.
Still, the decision relies heavily on U.S. Supreme Court authority governing the power of federal courts to enforce federally prohibited agreements. California operators should not assume the risk stops at the Sixth Circuit’s boundaries.
The takeaway
Hello Farms convinced a jury that the defendants breached their agreement. It proved substantial damages and obtained a $31.8 million verdict. None of that was enough once the federal appellate court concluded that enforcing the verdict would enforce a federally illegal bargain.
The case does not establish that every cannabis-related agreement is unenforceable. But it does reinforce a basic reality that cannabis contracts must be drafted not only for commercial performance and state regulatory compliance, but also for the court or tribunal that may eventually be asked to enforce them.
In cannabis contracting, a strong damages provision matters, but only if the chosen forum is willing and legally able to enforce the underlying bargain.
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For more updates on recent marijuana legislation, including rescheduling and the DEA rulemaking process, please check out these recent posts:
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