Key points in this story:
- Cannabis multistate operator Curaleaf Holdings dodged a nearly $32 million judgment on the basis that federal courts can’t enforce cannabis contracts.
- A Sixth Circuit Court of Appeals panel last month voided a lower-court ruling, but plaintiff Hello Farms is appealing and will go to the Supreme Court if necessary.
- In the meantime, cannabis contracts – particularly with other MSOs – are at risk of being voided if the contracts lack language preventing removal to federal courts, attorneys said.
Faced with a punishing $31.8 million judgment after stiffing a Michigan cultivator, cannabis multistate operator Curaleaf Holdings employed a novel strategy to dodge payment.
After nearly five years of legal wrangling and a loss at district court, the company successfully convinced an appellate court to nullify the contract because the original agreement – and the entire cannabis industry – are federally illegal.
But while Curaleaf may save tens of millions, it will come at a cost to the rest of the nearly $30 billion industry, legal experts told MJBizDaily.
The episode may create havoc for both cannabis companies and consumers in certain states. In particular, smaller companies doing business with publicly traded multistate operators faces a risk of their partner reneging, said Jason Adelstone, an attorney with Harris Sliwoski.
“I would expect just about any MSO to take the same approach under similar circumstances, particularly one with shareholders to answer to,” he said.
Are cannabis contracts unenforceable?
A federal appellate court last month declared Curaleaf’s contract with Michigan cultivator Hello Farms void, citing federal cannabis prohibition. More appeals are coming – including to the U.S. Supreme Court if necessary, Hello Farms’ attorney told MJBizDaily.
A Curaleaf spokesperson did not comment on the record to MJBizDaily.
“This does set a bad precedent for the industry, but it is not at all surprising,” added Irina Dashevsky, a Chicago-based attorney and partner at national law firm Greenspoon Marder, where she co-chairs the firm’s cannabis law group.
“In other words, illegality has been a concern across contracts in the industry, and it is foreseeable that a court might reach this conclusion,” she said.
“It is unfortunate and sets a negative precedent for the industry, but it is consistent with existing legal principles.”
Why did Curaleaf back out of a contract with a cannabis cultivator?
Curaleaf entered Michigan after purchasing Grassroots Cannabis for a reported $700 million in the summer of 2020. According to court records, the legal saga began in November 2020 when the company inked a supply deal with medical cannabis cultivator Hello Farms.
As per the agreement, Curaleaf promised to buy Hello Farms-grown cannabis at a set price as long as it passed testing. But after accepting the first shipment of 2,000 pounds, with cannabis prices tumbling, Curaleaf in January 2021 refused to accept any more.
Hello Farms sued for breach of contract in February 2021. Curaleaf successfully moved the matter to federal court, where it argued from the beginning that the contract was void under federal law.
Last year, a district court jury found in Hello Farms’ favor and awarded the company a staggering $31.8 million. (U.S. District Court Judge Matthew Leitman also memorably excoriated Curaleaf, calling in a pretrial hearing “the position taken… given their business and what I understand of them, is really, it seems to me, to be hypocrisy and illegal gamesmanship.”)
On appeal, a three-judge Sixth Circuit Court of Appeal panel reversed the lower-court decision on Sept. 10, finding that “federal courts can’t enforce federally illegal agreements.”
“If what they’re saying is true, there is no legal marijuana anywhere,” Patrick Lannen, Hello Farms’ attorney, told MJBizDaily recently.
“State courts are enforcing contracts where its legal, but they shouldn’t be, if the Sixth Circuit is correct.”
In which states are cannabis contracts at risk of being voided?
Earlier this month, Hello Farms appealed for a rehearing before a larger Sixth Circuit panel, claiming that the judgement “will cause unimaginable instability” in the states in the Sixth Circuit’s purview with legal cannabis: Ohio and Kentucky, as well as Michigan.
Specifically, the situation is raising questions about the agreements that bind markets that record more than $5 billion in annual sales.
At roughly $3.2 billion in annual sales, Michigan boasts the country’s second-largest state cannabis market. Ohio cannabis sales launched in 2024, and surged to $1.09 billion in 2025, with sales on pace to break that record in 2026.
Hello Farms plans to appeal to the U.S. Supreme Court if the Sixth Circuit declines to reverse the decision or rehear the case at all, Lannen said. (And according to a University of Cincinnati Law Review article, it’s unlikely to be heard.)
Hello Farms appears to be investing in a potential Supreme Court showdown. The company enlisted Neal Katyal, a partner at prominent law firm Millbank LPLP and a former acting U.S. solicitor general under the Obama administration, as its counsel of record.
How to ensure a cannabis contract can’t be voided in federal court
The rest of the cannabis industry is taking notice. On Monday, members of the National Organization for the Reform of Marijuana Laws Legal Committee filed an amicus brief urging the Sixth Circuit to rehear the case and find in Hello Farms’ favor.
Not doing so “removes a central means of holding businesses accountable,” the brief argued in part.
It does seem likely more cannabis companies will resort to the same defense Curaleaf used “to their advantage to get out of certain contracts that are no longer economically viable,” Greenspoon Marder’s Dashevsky said.
However, most contracts are likely safe, she added.
Curaleaf was able to get the case moved to federal court thanks in part to a doctrine called diversity jurisdiction, which won’t always apply (but may be more likely to apply when involving an MSO domiciled in Canada).
The Hello Farms-Curaleaf pact also likely lacked basic language that forbade one party or the other from moving a dispute to federal court rather than keeping it in state courts or sending to arbitration, attorneys contacted for this article said.
“The contracts most susceptible to this issue are those that lack these built-in protections and pertain to plant-touching activities,” Dashevsky said.
“I expect that a significant number of contracts in the space contain provisions that prohibit removal to federal court and waive illegality defenses,” she added.
“I would not characterize this as an across-the-board problem.”
Will federal marijuana rescheduling help cannabis contracts?
Federal marijuana rescheduling may also tilt the balance toward keeping contracts valid even if a federal judge is involved.
For now, the Hello Farms-Curaleaf saga “illustrates only one proposition: bad lawyering,” said Steven Schain, a Philadelphia-based attorney at Malkin Law, who emphasized the need to review contracts to ensure they can’t be removed to a federal court
“‘Unimaginable instability,’ sadly, is the bedrock upon which our industry was founded,” he added.
“Simply stated, bad agreements create bad results.”
Chris Roberts can be reached at chris.roberts@mjbizdaily.com.
