The Sixth Circuit Court of Appeals recently overturned a massive $38.1 million breach of contract judgment won by Michigan-based cannabis cultivator Hello Farms Licensing against subsidiaries of Curaleaf Holdings. The original lawsuit stemmed from a supply agreement in which Hello Farms contracted to sell its entire 2020 and 2021 harvests to Curaleaf entities.
When the deal fell apart, the cultivator sued and initially secured a substantial payout in lower court. However, the appellate court reversed the decision based on federal prohibition. Because marijuana remains a Schedule I controlled substance under the federal Controlled Substances Act, courts cannot enforce contracts that involve federally illegal substances.
This ruling highlights a persistent vulnerability for state-legal cannabis operators entering into high-value supply and distribution agreements. Without federal legalization or specific judicial carve-outs, commercial contracts in the cannabis space carry inherent risks that standard state-level business litigation cannot always remedy. Companies operating in the sector must reevaluate their risk management strategies, contract structures, and dispute resolution mechanisms.
Reliance on traditional civil courts to resolve contract disputes remains precarious as long as the federal government outlaws the plant. Operators should consult legal counsel to explore alternative mitigation strategies, such as arbitration clauses or escrow structures, although federal illegality continues to cast a shadow over standard commercial remedies.