A federal appeals court has wiped out a $31.8 million jury verdict awarded to a Michigan marijuana grower, ruling that a federal court cannot award damages for breach of a contract whose performance required conduct prohibited by federal marijuana law. In a published September 10, 2026 decision, the U.S. Court of Appeals for the Sixth Circuit reversed the judgment in Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, siding with two companies that had agreed to purchase tens of thousands of pounds of cannabis and later stopped accepting deliveries when marijuana prices collapsed. The panel concluded that however lawful the transaction may have been under Michigan’s regulated cannabis system, federal courts could not enforce a bargain that required cultivation and distribution prohibited by the Controlled Substances Act at the time the agreement was made.
The ruling is potentially important far beyond the money involved in this individual dispute. Hello Farms is a published Sixth Circuit opinion, making its reasoning precedent for federal courts in Michigan, Ohio, Kentucky and Tennessee. It arrives just months after the Justice Department placed qualifying state-licensed medical marijuana into Schedule III, yet the appeals court held that the 2026 reform neither retroactively legalized the 2020 agreement nor necessarily makes an equivalent contract lawful today without the federal registrations now required. For cannabis companies that have spent years operating under state licenses while relying on ordinary commercial contracts, the case sharply illustrates how the continuing divide between state and federal law can suddenly become decisive when a dispute reaches federal court.
The Case Began With a Massive Michigan Marijuana Supply Agreement
In November 2020, Hello Farms Licensing MI entered an output contract with GR Vending MI under which GR Vending agreed to purchase all marijuana produced in Hello Farms’ 2020 and 2021 harvests. Cura MI guaranteed GR Vending’s payment obligations. Both purchasing companies were associated with Curaleaf Holdings. At the time, Hello Farms held Michigan licenses to grow medical marijuana, while GR Vending held licenses allowing it to participate in both Michigan’s medical and adult-use markets. The agreement anticipated between 12,000 and 15,000 pounds from the 2020 crop, required batches to pass cannabis testing standards and included a $2.2 million deposit.
Hello Farms ultimately harvested about 16,300 pounds in 2020, and the crop passed the required testing. GR Vending accepted roughly 2,000 pounds, but the market changed quickly. According to the appeals court, marijuana prices were falling sharply by January 2021 and GR Vending refused additional deliveries. Hello Farms then sold the remaining cannabis to another buyer at lower prices. For its 2021 crop, the grower expanded from seven to 25 acres, obtained recreational cultivation licenses and produced approximately 37,500 pounds, which was also sold elsewhere for less than Hello Farms maintained it would have received under the original deal.
A Jury Awarded Hello Farms $31.8 Million—And the Judgment Grew Even Larger
Hello Farms sued in Michigan state court in February 2021 seeking damages for breach of contract. The defendants transferred the case to the U.S. District Court for the Eastern District of Michigan under federal diversity jurisdiction and raised an unusual but increasingly important defense: even though the marijuana transaction was authorized by Michigan, federal law still prohibited the manufacture and distribution of cannabis. The companies therefore argued that a federal judge could not enforce the agreement at all. The district court rejected that argument, the case proceeded to trial and a jury found the defendants liable for breach.
The jury awarded Hello Farms $31,848,279. The district court later added approximately $5.4 million in prejudgment interest, producing a judgment of about $37.26 million before additional interest. Curaleaf subsequently disclosed the litigation and the potential financial exposure in filings with the Securities and Exchange Commission. The defendants appealed, arguing first that the entire contract was unenforceable under federal law, alternatively that damages connected to recreational cannabis were impermissible, and finally that the evidence did not support the size of the verdict. The Sixth Circuit resolved the appeal entirely on the first issue.
The Sixth Circuit Said Federal Courts Cannot Enforce the Underlying Bargain
Judge John Nalbandian, writing for the court, grounded the decision in a longstanding rule of federal contract law: courts cannot use judicial power to enforce agreements whose performance would itself violate an explicit federal statute. The court relied heavily on Supreme Court decisions holding that private parties cannot obtain damages when their claimed contractual right is inseparable from conduct federal law forbids. That principle applies even when the requested remedy is simply money rather than an order compelling illegal conduct.
That distinction was critical. Hello Farms was not asking the court in 2026 to order GR Vending to physically take possession of marijuana. It was asking for the profits it said it would have earned had GR Vending fulfilled the purchase agreement. But the Sixth Circuit reasoned that those profits were calculated directly from the defendants’ promise to purchase cannabis. Awarding them would therefore enforce the economic value of the prohibited transaction itself. In the court’s view, a party cannot avoid the federal-illegality rule merely by converting an unlawful promised performance into a later claim for monetary damages.
State Legalization Did Not Override the Controlled Substances Act
The ruling exposes the unusual legal environment in which U.S. cannabis businesses have operated for years. Michigan legalized medical marijuana and later created a licensed adult-use system, complete with cultivation licenses, testing requirements and regulated transfers. But during 2020 and 2021, federal law still classified marijuana as Schedule I, and the Controlled Substances Act made unauthorized cultivation and distribution federal crimes regardless of what Michigan law permitted.
The Sixth Circuit emphasized that this federal-state conflict is not something judges are free to resolve by deciding which policy seems more sensible. Federal law governs when the two directly conflict. The court acknowledged declining federal enforcement and growing public acceptance of marijuana, but said enforcement priorities do not rewrite the statute Congress enacted. The opinion also noted that hundreds of federal marijuana-trafficking sentences were still imposed in 2025, underscoring that the federal prohibition was not merely theoretical.
The Medical Marijuana Appropriations Rider Did Not Make the Contract Legal
Hello Farms had another significant argument. Since 2014, Congress has repeatedly included an appropriations provision commonly associated with the Rohrabacher-Farr protections that restricts the Justice Department from spending certain funds to interfere with states implementing medical marijuana laws. Federal appellate courts have interpreted the rider to restrict prosecutions of people complying with qualifying state medical-cannabis laws. The district court viewed that congressional policy as one reason the Hello Farms agreement could be enforced.
The Sixth Circuit disagreed. An appropriations rider limiting DOJ spending is not the same thing as repealing the Controlled Substances Act. The conduct may temporarily be insulated from a federally funded prosecution under certain circumstances while remaining prohibited by federal statute. The court pointed to other consequences of marijuana’s federal status that historically survived the rider—including tax, bankruptcy, trademark and lending restrictions—as evidence that Congress had chosen non-enforcement in a narrow context rather than legalization. Because the underlying marijuana activity remained criminal when the contract was made, the court concluded that the rider could not transform the bargain into an enforceable federal contract.
The New Schedule III Rules Did Not Rescue the Old Contract
The timing of the decision makes the court’s discussion of Schedule III particularly significant. In April 2026, while the appeal was pending, the Justice Department placed FDA-approved marijuana products and marijuana covered by qualifying state medical licenses into Schedule III. DOJ described the reform as a way to recognize state-regulated medical programs while maintaining federal controls, and DEA simultaneously created a registration pathway for qualifying medical cannabis businesses.
Hello Farms argued that the new federal approach supported enforcing its agreement. The Sixth Circuit rejected that argument for two separate reasons. First, contracts are ordinarily judged according to the law existing when they are formed. The November 2020 agreement was already unlawful under federal law, and the April 2026 rule did not say it would retroactively validate old cannabis contracts. Second, Schedule III does not mean state medical-marijuana businesses can automatically manufacture and distribute cannabis without federal authorization. DEA registration remains required. The court made the point explicit: even if the same medical-marijuana contract were signed today, performing it without the required DEA registration would still violate federal law.
The Ruling Is Part of a Growing Federal Cannabis Contract Problem
Hello Farms is not the first case in which federal marijuana prohibition has collided with ordinary commercial law. Earlier in 2026, the Third Circuit confronted a dispute involving compensation for consulting and genetics work performed for a Pennsylvania medical-marijuana business. In Apical Biotek v. Maitri Holdings, that court vacated a lower-court ruling and ordered the district judge to determine whether the agreement contemplated federally prohibited cannabis activity and, if so, whether the claims had to be dismissed. The opinion stressed that federal courts cannot simply ignore Controlled Substances Act problems because the underlying cannabis business is licensed by a state.
Federal courts have not always treated every marijuana-related agreement identically. Some earlier cases permitted claims where judges believed a lawful remedy could be fashioned without requiring prohibited cannabis activity. Insurance, real-estate, investment and ancillary-service agreements have generated particularly mixed outcomes. The Tenth Circuit, for example, has recognized that merely having some relationship to marijuana does not automatically make every contract unenforceable and has remanded cases for closer analysis of whether the requested relief would actually conflict with federal law. What makes Hello Farms different is how directly the contract concerned the purchase and sale of marijuana itself.
Cannabis Businesses in Four States Now Face Clearer Federal Risk
Because the opinion was recommended for publication, it carries considerably more weight than an unpublished one-off dispute. Federal district courts throughout Michigan, Ohio, Kentucky and Tennessee now have controlling Sixth Circuit precedent stating that they cannot enforce a contract founded on an agreement to purchase marijuana illegally under federal law. The rule may be especially important when litigation reaches federal court through diversity jurisdiction, as happened here, even though neither party originally filed the dispute there.
The case also presents an uncomfortable commercial incentive. A cannabis company could voluntarily sign a state-law-compliant marijuana contract, accept some performance and later invoke federal illegality when sued for breaching it. The Sixth Circuit openly recognized that Hello Farms might see the result as a windfall for the defendants. But the judges said preventing an inequitable outcome between the parties could not justify using federal judicial power to enforce conduct Congress prohibited. The illegality defense exists, the court explained, not as a reward for the breaching party but because courts themselves cannot participate in enforcing an illegal bargain.
The Decision Does Not Mean Every Cannabis Contract Is Automatically Void
The ruling should not be read as declaring every contract involving a cannabis company unenforceable in every court. The closer a contract is to federally prohibited cultivation, possession or distribution, however, the greater the risk highlighted by Hello Farms. A direct agreement to buy thousands of pounds of marijuana is very different from a contract for ordinary office equipment, legal services or other activity that may be separable from marijuana trafficking. Other federal circuits have also taken somewhat different approaches when determining whether ancillary agreements are too closely connected to prohibited activity.
Nor did the Sixth Circuit decide whether Hello Farms’ damages calculations were correct or whether part of the award improperly reflected recreational cannabis. Because federal illegality disposed of the entire breach claim, the panel expressly declined to address those issues. Further appellate options could include a request for rehearing or eventual Supreme Court review, but unless the decision is altered, the $31.8 million jury award—and the larger $37.26 million judgment that followed—is no longer enforceable under the Sixth Circuit’s ruling.
A Stark Reminder That Federal Cannabis Reform Remains Incomplete
The broader significance of Hello Farms is that changing marijuana policy has not yet erased the legal consequences created by decades of federal prohibition. Schedule III has begun changing the federal treatment of qualifying medical marijuana, but it does not retroactively legalize old transactions and does not automatically authorize present-day state licensees to operate without federal registration. The state-federal conflict therefore continues to affect contracts, taxes, bankruptcy, intellectual property and other ordinary aspects of doing business.
For the cannabis industry, the case may become one of the clearest appellate warnings yet about relying on federal courts to resolve disputes over federally unauthorized marijuana transactions. Hello Farms complied with Michigan’s regulatory system, sold cannabis in a state where the activity was licensed and convinced a jury that its buyer had breached a multimillion-dollar contract. None of that was enough. The Sixth Circuit concluded that as long as federal law made the promised marijuana transaction illegal, a federal court could not turn that bargain into an enforceable claim for lost profits. That gap between state legalization and federal enforceability remains one of the most consequential unresolved legal problems facing the American cannabis market.
