Background
Hello Farms, a Michigan-licensed medical-marijuana grower, agreed in 2020 to sell its entire 2020 and 2021 harvests to GR Vending, with CURA MI serving as guarantor. GR Vending held both medical and recreational marijuana licenses. After accepting about 2,000 pounds, GR Vending stopped taking deliveries when marijuana prices fell, and Hello Farms sold the remaining harvests to another buyer at lower prices.
Hello Farms sued for breach of contract, and Defendants removed the case to federal court. Although Defendants argued that federal marijuana law made the agreement unenforceable, the district court allowed the claim to proceed. A jury awarded Hello Farms $31.8 million, and the district court denied Defendants’ renewed motion for judgment as a matter of law and alternative motion for a new trial.
The Court’s Holding
The Sixth Circuit reversed the denial of judgment as a matter of law. It held that federal courts cannot award damages on a contract whose performance required conduct prohibited by the federal Controlled Substances Act. The agreement required Hello Farms to possess and distribute marijuana and GR Vending to purchase and possess it for further distribution, so an award of lost profits would enforce the parties’ federally illegal bargain.
The court concluded that the contract was not limited to medical marijuana because it required compliance with recreational testing standards and permitted GR Vending, which held both kinds of licenses, to transfer product into the recreational market. It also held that the contract would remain unenforceable even if confined to medical marijuana: the congressional appropriations rider restricting Justice Department spending did not legalize or decriminalize the conduct, and the April 2026 rescheduling rule did not retroactively validate the 2020 agreement. The court did not reach Defendants’ separate challenges to recreational-marijuana damages or the sufficiency of the evidence supporting the verdict.
Key Takeaways
- Federal law governs the effect of federal statutory illegality even in a diversity contract action.
- A federal court cannot award lost profits when the plaintiff’s claim is founded on an agreement requiring marijuana transactions prohibited by federal law.
- Neither a Justice Department appropriations restriction nor later rescheduling retroactively made this contract enforceable.
Why It Matters
The decision exposes state-licensed marijuana businesses to substantial contract-enforcement risk in federal court when performance remains prohibited by federal law. State legalization and reduced federal enforcement do not themselves eliminate the federal illegality defense.
The ruling also rejects equitable concerns as a basis for enforcing an agreement to commit federal crimes, even when nonenforcement produces a windfall for the breaching party.