Challenges are mounting over the federal legality of business contracts involving cannabis companies as the federal government continues to stall on rescheduling.
The National Organization for the Reform of Marijuana Laws recently entered the fray with their own amicus brief in support of a rehearing on a 6th Circuit Court of Appeals ruling that federal courts cannot lawfully enforcement business contracts that involve federally illegal activity, regardless of state-level legality.
“A regulated cannabis market requires more than issuing licenses. It requires settled, predictable rules on which market participants can rely, and meaningful remedies when contractual obligations are breached,” said the 19-page filing from NORML.
The legal battle originated in Michigan where Hello Farms, a state-licensed cannabis cultivator, sued Curaleaf, through its subsidiaries GR Vending and Cura MI, for breach of contract.
A pricing dispute
The two Curaleaf companies entered into an agreement with Hello Farms to secure the purchase of the its 2020 and 2021 harvest. This was when cannabis prices in Michigan began to plummet. After accepting a 2,000-pound shipment, about one-eighth of Hello Farms’ 2020 yield, GR Vending and Cura MI allegedly canceled the deal, causing Hello Farms to sell the remaining crop to a third party at a much lower price than Curaleaf originally agreed to, according to the plaintiff’s lawsuit.
Hello Farms sued the larger multi-state organization on Feb. 1, 2021, for breach of contract in Michigan for $31.8 million.
Hello Farms originally sued Curaleaf at the state level in Arenac County Circuit Court, but the defendant was able to successfully remove the case to the Eastern U.S. District Court of Michigan on March 4, 2021 based on diversity in jurisdiction, because the defendant companies are owned by entities that are based outside of Michigan. The case was also approved for removal because the claim exceeded $75,000.
The federal court ruled in favor of Hello Farms, but that judgment was overturned by the 6th Circuit Court of Appeals on the grounds that federal law cannot be used to enforce deals involving cannabis as long as it remains federally illegal.
“Despite the legalization of marijuana in Michigan, federal courts cannot enforce agreements to commit federal crimes,” wrote in Circuit Judge John Nalbandian in a 20-page opinion released by the 6th Circuit on Sept. 10.
Hello Farms petitioned, on Oct. 8, for a rehearing of its case en banc, which means in front of the entire Circuit, rather than the three-judge panel that issued the original opinion in September.
“The consequences of that holding will cause unimaginable instability for the states in this circuit that have legalized marijuana for medical or recreational use. Rehearing is warranted,” said the petition.
The 6th Circuit includes Michigan and Ohio, which have legal adult-use markets, Kentucky, which has a growing medical market and Tennessee, in which medical and adult-use cannabis remains illegal.
“Congress has protected implementation of state medical-marijuana laws against specified federal expenditures. Michigan has imposed consumer safeguards on both medical and adult-use markets. A judicial rule that undermines contract accountability throughout those markets cannot be justified merely by repeating that federal prohibition remains,” argued NORML.
Representatives from Hello Farms and Curaleaf did not respond to emailed requests for comment.
Court still wait for federal action
Regardless of whether the 6th Circuit agrees to rehear the case there is likely to be more legal challenges into the ability of federal courts to enforce cannabis business contracts. Rescheduling remains in flux and any changes in enforcement would not necessarily grandfather contracts that existed before the change, especially since rescheduling alone would not validate such contracts.
“Despite the rescheduling, state-licensed marijuana businesses must receive FDA approval before introducing marijuana products into interstate commerce, and they must register with the DEA to lawfully grow or distribute marijuana for medical use,” wrote Nalbandian in the 6th Circuit’s opinion.
Medical cannabis currently remains at Schedule III following a shift on April 28, 2026. At the same time, adult-use cannabis is still Schedule I. Over the summer the federal government held a series of hearings about rescheduling, but that process will remain paused until at least November 5, according to a recent order from Chief Administrative Law Judge Derek Julius.
Until then, enforcing business contracts that involve adult-use cannabis will remain a challenge at the federal level.
