I. Introduction
Roughly half the country now lives in a state where recreational marijuana is “legal,” and nearly every American lives within reach of a state-sanctioned medical program. Licensed businesses cultivate, process, transport, and sell cannabis under comprehensive state regulatory regimes, and billions of dollars change hands under contracts that look like any other commercial agreements. Last month, however, the Sixth Circuit reversed a $31.8 million jury verdict in a contract dispute between a licensed Michigan grower and subsidiaries of Curaleaf Holdings—one of the largest cannabis companies in the world—for a simple reason: “On the face of the contract, the parties promised to commit felonies.” Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, No. 25-1759, --- F.4th ----, 2026 WL 2664747, at *5 (6th Cir. Sept. 10, 2026).
The decision is a reminder of an uncomfortable truth for the cannabis industry. Under federal law, marijuana remains a controlled substance, and virtually everything a state-licensed cannabis business does—growing, processing, selling, and contracting to do any of those things—arguably remains a federal crime. Stated differently, “legal” cannabis may not actually be legal, and the consequences of that unresolved conflict are no longer theoretical. In the Sixth Circuit, they are now precedential.
II. Federal Law, State Law, and the Supremacy Clause
Under the Supremacy Clause, the “Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. A state may decline to criminalize conduct under its own law, but it cannot repeal, displace, or immunize its citizens from a valid federal statute.
The Supreme Court, moreover, has confirmed that the federal marijuana prohibition is a valid exercise of the commerce power that reaches even purely intrastate, state-sanctioned cannabis activity, rendering marijuana “contraband for any purpose.” Gonzales v. Raich, 545 U.S. 1, 27 (2005). As the 6th Circuit stated in the Hello Farms decision, “[t]he Supremacy Clause unambiguously provides that if there is any conflict between federal and state law, federal law shall prevail.” Hello Farms, 2026 WL 2664747, at *10 (quoting Raich, 545 U.S. at 29).
III. The Controlled Substances Act and State Cannabis Laws
The federal Controlled Substances Act (“CSA”) classifies marijuana as a Schedule I controlled substance, see 21 U.S.C. § 812—subject to the April 2026 rescheduling of certain medical marijuana discussed below—and makes it “unlawful for any person knowingly or intentionally . . . to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance,” 21 U.S.C. § 841(a)(1)—with penalties, at the quantities commercial operators handle, of up to life imprisonment and tens of millions of dollars in fines. See 21 U.S.C. § 841(b)(1)(A). There is no exception for state-licensed businesses or their contracts. Consequently, a federal prosecutor could contend that a licensed Michigan cultivator selling its harvest to a licensed Michigan retailer commits the same federal felony as an unlicensed dealer.
Congress has come closest to addressing the conflict through an appropriations rider—first enacted in 2014 and renewed annually since—that bars the Department of Justice from using appropriated funds to prevent states from implementing their medical marijuana laws. But as the Sixth Circuit has already held, “[t]hough [the rider] purports to temporarily deny funding for the prosecution of certain crimes, the rider’s text contains no suggestion that the substantive conduct prohibited by the CSA has now been made legal.” United States v. Trevino, 7 F.4th 414, 427 (6th Cir. 2021); see Ne. Patients Grp. v. United Cannabis Patients & Caregivers of Me., 45 F.4th 542, 555 (1st Cir. 2022) (“The [rider] does not in fact repeal the CSA as to medical marijuana.”). And even the April 2026 rescheduling rule—which moved FDA-approved products and state-licensed medical marijuana to Schedule III—requires DEA registration, has no retroactive effect, and says nothing at all about the recreational market. See 91 Fed. Reg. 22714 (Apr. 28, 2026).
Despite those efforts, Congress has never amended the CSA to accommodate the cannabis frameworks under state law. Rather, Congress has repeatedly considered legalization bills and declined to pass them. See, e.g., Marijuana Opportunity Reinvestment and Expungement Act of 2019, H.R. 3884, 116th Cong. (2020) (passed the House; died in the Senate Finance Committee).
Consequently, the only “reconciliation” between the CSA and state cannabis laws has been an equilibrium of forbearance involving enforcement discretion and appropriations riders.
IV. The Federal Courts’ Narrowing Framework: Enforce Unless the Judgment Itself Commands a Crime
To address the tension between the CSA and state cannabis laws, many federal courts took a narrowing approach to the federal illegality defense. On that view, a contract was not unenforceable merely because it touched a cannabis business; a court declined to enforce a contract only where the judgment itself would command illegal conduct—for example, ordering the transfer or operation of a marijuana enterprise. See, e.g., Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 80 (1982) (federal courts may not enforce a contract where “the judgment of the Court would itself be enforcing the precise conduct made unlawful” (quoting Kelly v. Kosuga, 358 U.S. 516, 520–21 (1959))); Bassidji v. Goe, 413 F.3d 928, 936, 939 (9th Cir. 2005) (“courts will not order a party to a contract to perform an act that is in direct violation of a positive law directive,” so the question is whether “a plausible remedy exists . . . that would not require a court to order a legal violation”); Mann v. Gullickson, 2016 WL 6473215, at *7 (N.D. Cal. Nov. 2, 2016) (“[W]here it is possible for a court to enforce a contract in a way that does not require illegal conduct, the court is not barred from according such relief.”).
Under that analysis, many courts have viewed a money judgment as permissible. In other words, if paying damages is not a federal crime, then awarding damages enforces nothing illegal. Shulman v. Kaplan, 58 F.4th 404, 409 (9th Cir. 2023) (holding that a claim for money damages for alleged RICO injuries to a cannabis business was redressable, though ultimately affirming dismissal of the RICO claims for lack of statutory standing); Ginsburg v. ICC Holdings, LLC, 2017 WL 5467688, at *8 (N.D. Tex. Nov. 13, 2017) (“Obtaining this relief does not require that ICC manufacture, distribute, dispense, or possess marijuana.”); Green Earth Wellness Ctr., LLC v. Atain Specialty Ins. Co., 163 F. Supp. 3d 821, 835 (D. Colo. 2016) (insurer of a marijuana business, “having entered into the Policy of its own will, knowingly and intelligently, is obligated to comply with its terms or pay damages for having breached it”).
V. The Sixth Circuit’s September 2026 Holding
The Sixth Circuit has now rejected that narrowed framework of illegality.
The underlying dispute was ordinary commercial litigation. In November 2020, Hello Farms, a licensed Michigan grower, agreed to sell its entire 2020 and 2021 cannabis harvests (an expected 12,000 to 15,000 pounds from the 2020 harvest alone) to GR Vending MI, a Curaleaf subsidiary holding both medical and recreational licenses, with a second Curaleaf subsidiary, CURA MI, serving as guarantor. When wholesale prices crashed in early 2021, GR Vending took roughly 2,000 pounds and refused the rest. Hello Farms mitigated the loss by selling at a discount to a third party. Hello Farms sued in Michigan state court; the defendants removed the case to the Eastern District of Michigan, where a jury awarded Hello Farms $31.8 million. The district court twice rejected the buyers’ federal illegality defense—calling it a “close call”—reasoning that the contract concerned Michigan’s regulated medical program and that the appropriations rider reflected a federal policy of tolerance. Hello Farms, 2026 WL 2664747, at *2–3.
The Sixth Circuit reversed. The Court grounded the decision in a line of Supreme Court authority running from McMullen v. Hoffman, 174 U.S. 639 (1899), through Kelly v. Kosuga, 358 U.S. 516 (1959), to Kaiser Steel Corp. v. Mullins, 455 U.S. 72 (1982)—which holds that a federal court has a duty to determine whether a contract violates federal law before enforcing it.
The court rejected the money-judgment framework, holding that a claim for lost profits under a marijuana supply contract “isn’t founded on a legal agreement separate from an illegal one” given that the profits “arise[] from and [are] measured by” the promise to buy and sell federally contraband goods. Hello Farms, 2026 WL 2664747, at 5–6 & n.3. Awarding those profits is a realization of “the fruits” of an illegal agreement, which federal courts have refused to assist since Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U.S. 227, 262 (1909). Ultimately, the Court concluded that “[w]e must not enforce illegal conduct, not just refrain from commanding illegal conduct.” Hello Farms, 2026 WL 2664747, at 6.
According to the 6th Circuit, therefore, the question is not whether the judgment would order anyone to commit a crime. The question is whether the damages claim would enforce the parties’ agreement to commit federally unlawful conduct. Here, the lost profits arose directly from—and were measured by—the promise to buy marijuana, so pleading for money rather than performance did not avoid the defense.
The decision may not be the last word. On October 8, 2026, Hello Farms petitioned for panel rehearing and rehearing en banc. No. 25-1759, Doc. 48 (6th Cir. Oct. 8, 2026). Unless and until the full court takes up the case, however, the panel’s holding is the published law of the circuit.
VI. Open Questions for the Cannabis Industry
If the Sixth Circuit’s approach spreads, the questions multiply quickly. If a supply agreement is unenforceable because the parties promised to commit felonies, what about:
· leases for cultivation facilities?
· loans secured by cannabis inventory?
· insurance policies covering the crop?
· M&A agreements transferring licensed entities?
· contracts with employees at dispensaries?
· contracts with payment processors?
· financial accounts to hold proceeds?
· purchases by consumers?
Those questions are no longer hypothetical. In sum, the Sixth Circuit has ruled that state legalization made cannabis locally tolerated, not legal; in other words, marijuana’s illegality “doesn’t turn off and on based on the executive’s enforcement priorities.” Hello Farms, 2026 WL 2664747, at *11 (citing Feinberg v. C.I.R., 808 F.3d 813, 816 (10th Cir. 2015) (Gorsuch, J.)). This decision affects every participant in the industry—growers, operators, lenders, landlords, insurers, investors, and consumers at every level of the supply chain.
By Constantine P. Economides
Dynamis LLP represents businesses and individuals in complex commercial disputes, including cannabis-related litigation, in courts nationwide.