The Sixth Circuit has wiped out a $31.8 million jury verdict that Hello Farms, a licensed Michigan cultivator, had won against Curaleaf subsidiaries for walking away from a supply contract. The court’s reasoning was direct: federal courts cannot enforce agreements to commit federal crimes, and buying and selling marijuana is still one. You can read the September 2026 opinion, Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, No. 25-1759, here.
The published decision binds federal courts in Michigan, Ohio, Kentucky, and Tennessee, giving defendants there a ready-made defense to cannabis contract claims. Courts in other circuits are free to reach a different result.
For operators, investors, and their counsel, the lesson is practical: where a cannabis dispute gets decided may now matter even more than what the contract actually says.
What Happened
In November 2020, GR Vending agreed to buy Hello Farms’ entire 2020 and 2021 harvests, with its affiliate CURA MI as guarantor. GR Vending paid a $2.2 million deposit and accepted about 2,000 of the roughly 16,300 pounds Hello Farms harvested in 2020. By January 2021, marijuana prices were in freefall, and GR Vending stopped taking deliveries. Hello Farms sold the rest of that harvest, and its larger 2021 crop, to a third party at lower prices.
Hello Farms sued in Michigan state court to recover its lost profits. The defendants removed the case to federal court on diversity grounds and argued the contract was unenforceable because it violated the Controlled Substances Act (CSA). The district court called it a close call but rejected the defense, treating the deal as a medical-marijuana contract that federal policy tolerates. A jury awarded Hello Farms $31.8 million. The Sixth Circuit reversed.
What the Court Held
The opinion matters for deal lawyers in several ways:
- Money claims don’t avoid the problem. Hello Farms argued that a payment order doesn’t force anyone to break the law. The court disagreed. A lawsuit seeking lost profits from an unfulfilled marijuana deal still enforces an illegal contract. The same rule would apply in reverse if the grower had backed out.
- Courts leave the parties where they find them. No damages, and no unwinding of what had already changed hands: whatever cash and product the parties held stayed with them.
- The federal court must raise illegality on its own. The opinion says a federal court would have to refuse enforcement even if no party asked it to. In federal court, a contractual waiver of the illegality defense is unlikely to help.
- State law, choice of law, and enforcement trends don’t change the answer. Whether federal illegality bars enforcement is a question of federal law, even in a diversity case. The recent decline in federal enforcement, the court said, is not a change in the law.
- A medical label won’t save the deal. The court held that even a medical-only contract would fail. The federal rider shielding state medical programs only limits DOJ prosecutions; it doesn’t make the activity legal.
- Rescheduling is not a safe harbor. Enforceability is judged when the contract is signed, and the April 2026 rule is not retroactive. Even going forward, it covers only state-licensed medical marijuana and still requires DEA registration. Adult-use activity remains in Schedule I.
Recommendations for Cannabis Contracts
The practical response is to draft so that you stay out of federal court and need a court as little as possible.
For Every Cannabis Contract
- Make federal court hard to reach. Use an exclusive state-court forum clause in a legal-cannabis state, with a clear and unequivocal waiver of the right to remove.
- Use arbitration, with eyes open. Seat it in a legal-cannabis state, choose arbitrators who know the industry, and name a state court for confirming or vacating the award. One caveat: if an award ends up before a federal court, that court may refuse to confirm it on public-policy grounds. Arbitration lowers the risk; it does not remove it.
- Protective clauses have limits. Covenants not to assert federal illegality, choice-of-law clauses, and severability provisions still have value in state court and as a deterrent. In federal court, expect them to fail.
- Get paid as you go. Because courts leave the parties where they find them, whoever holds the money when a deal breaks usually keeps it. Sellers should favor prepayment or payment on delivery and deposits that are expressly nonrefundable and applied to purchases. Buyers should resist large prepayments.
Supply and Offtake Agreements
- Replace multiyear, whole-harvest commitments with shorter terms or lot-by-lot purchase orders.
- Build in price-reset mechanisms tied to market benchmarks, which reduce a buyer’s incentive to walk when prices drop.
- Run credit diligence on the buyer before planting, not after the breach.
M&A and Investment
- Expect deferred consideration to be the soft spot. Seller notes, earnouts, deferred purchase price, and rollover equity all depend on future enforcement. The court cited a 2025 Southern District of Ohio decision, within the Sixth Circuit, that refused to enforce an agreement to buy a marijuana business. It also pointed approvingly to decisions refusing to enforce investments in cannabis businesses, so no deal should assume it is safe just because it doesn’t involve touching the plant.
- Sellers should push for more consideration at closing; buyers should use escrows and holdbacks so they can recover by withholding funds rather than suing.
- Remember the rule is symmetric. Either side can invoke the defense to block an indemnity claim from the other.
- Put forum and arbitration provisions in every ancillary document, including transition services, supply, and restrictive covenant agreements.
Real Estate and Financing
Leases and loans may be on firmer footing, since the court left room to enforce a lawful agreement that stands on its own. The risk rises with percentage rent, cannabis inventory as collateral, and covenants requiring cannabis operations. Lean on security deposits, guaranties, real property collateral, and the forum and arbitration terms above.
Your Existing Contracts
- Audit current agreements for forum, removal, and arbitration terms, starting with long-tail obligations: deferred purchase price, multiyear supply, and guaranties.
- Add those terms at the next amendment, renewal, or waiver request, when you have leverage.
- When a dispute arises, decide where to bring it before filing. As Hello Farms shows, a case filed in state court can still end up in federal court, so involve litigation counsel early on forum strategy.
What to Watch
- Further review. Hello Farms may still ask the Supreme Court to take the case. Unless a higher court steps in, this is now the law for federal courts in Michigan, Ohio, Kentucky, and Tennessee.
- Rescheduling. The DEA’s separate proceeding on adult-use marijuana could narrow the problem for future contracts. The court noted that Congress or an agency could give agreements retroactive validity, but the April 2026 rescheduling rule did not.
- Other courts. State courts in legal-cannabis states are not bound by Hello Farms and have generally been more willing to enforce these deals. How federal courts outside the Sixth Circuit respond will shape forum planning nationwide.
The Takeaway
Hello Farms does not void every cannabis contract, but in Michigan, Ohio, Kentucky, and Tennessee, parties can no longer count on federal courts to enforce agreements to buy or sell cannabis. Forum selection, arbitration, and payment structures that limit exposure should now be treated as core deal terms, not boilerplate.
Thompson Coburn’s National Cannabis Practice is reviewing client agreements in light of the decision. If you would like us to look at yours, please reach out.
