Legal in Michigan, Unenforceable in Federal Court: The $31.8 Million Hello Farms Decision

A Michigan marijuana grower held state licenses, signed a supply contract with another licensed Michigan business, and won a $31.8 million jury verdict when the buyer stopped taking deliveries. On September 10, 2026, the U.S. Court of Appeals for the Sixth Circuit erased that verdict. In Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, the court held that because the contract was an agreement to commit federal crimes, a federal court could not enforce it.

The decision matters most to cannabis businesses, but its reasoning reaches further. It shows that a court will not enforce a contract to do something illegal, that whether an agreement is unenforceable on public-policy grounds is ordinarily judged when it is made, and that a contract’s terms can shape how a court reads the whole deal.

What happened

In November 2020, Hello Farms agreed to sell its entire 2020 and 2021 marijuana harvests to GR Vending MI, LLC. CURA MI, LLC guaranteed GR Vending’s obligations. GR Vending and CURA MI were both subsidiaries of Curaleaf Holdings, Inc. At the time, Hello Farms held Michigan licenses to grow medical marijuana only. GR Vending held Michigan licenses to operate as a provisioning center and a retailer, which allowed it to sell for both medical and recreational use.

The contract expected a 2020 harvest of 12,000 to 15,000 pounds and called for a $2.2 million deposit, refundable under certain conditions. One condition required the marijuana to pass “local and state recreational cannabis testing requirements.” Hello Farms grew about 16,300 pounds in 2020, and all of it passed testing. GR Vending paid the deposit and accepted the first shipment of about 2,000 pounds. By January 2021, marijuana prices were falling sharply, and GR Vending refused further deliveries. Hello Farms sold the rest of that harvest, and its larger 2021 harvest, to a third party at lower prices.

Hello Farms sued for lost profits in Michigan state court in February 2021. The defendants moved the case to federal court on the basis that the parties were from different states (diversity jurisdiction) and argued that the contract was unenforceable because marijuana is illegal under federal law. The district court rejected that defense before trial, and the jury awarded Hello Farms $31.8 million. After trial, the court rejected the defense again, describing it as a close call. It reasoned that this was a medical-marijuana contract and that federal policy tolerates state medical-marijuana markets.

What the Sixth Circuit held

The Sixth Circuit reversed. It held that the district court should have granted the defendants judgment as a matter of law, a ruling in their favor that sets aside the jury’s verdict. It summarized its holding in one line: “despite the legalization of marijuana in Michigan, federal courts cannot enforce agreements to commit federal crimes.”

Federal law decides whether a contract is illegal under federal law

Federal courts usually apply state contract law in diversity cases. But the court explained that the effect of a federal statute on a contract is a question of federal law, and a federal court has a duty to decide whether a contract violates federal law before enforcing it. When a claim for damages is founded on an illegal agreement, the court will not allow recovery. In the court’s words, “We leave the parties as we find them.”

The court drew a line between two situations. If a lawful agreement includes an illegal promise, a court may still enforce the lawful agreement when it stands on its own, apart from the tainted promise. If the agreement itself is illegal, it is unenforceable. Hello Farms was in the second situation.

How the majority read the deal

Hello Farms argued that this was a medical-marijuana contract, because it held only medical growing licenses. The majority disagreed, relying on three points together. Nothing in the contract limited the sale to the medical market. The contract required the marijuana to pass recreational testing requirements. And GR Vending held both medical and recreational licenses, which under Michigan law allowed it to move product between its medical and recreational inventories. Taken together, the majority concluded, the parties did not limit their transaction to medical marijuana, and the contract left the product available for the recreational market. Federal policy against recreational marijuana, the majority said, is explicit and well-defined, and on the face of the contract the parties promised to commit felonies.

Judge Hermandorfer agreed with the result but did not join this part of the opinion. The opinion does not explain why, and she did not write separately.

A medical-only contract would have failed too

The court went on to hold, as an alternative ground, that the result would be the same even if the contract were limited to medical marijuana. This part of the opinion had the support of all three judges.

Since 2014, Congress has included a provision in its annual spending laws, often called the Rohrabacher-Farr Amendment, that bars the Department of Justice from using those funds to prevent states from implementing their medical-marijuana laws. Hello Farms argued that, because of this provision, the parties’ conduct was unlawful but not criminal, so the court should weigh the equities before refusing to enforce the contract. The court disagreed. Assuming without deciding that the provision blocks federal prosecutions, it found that limiting how the Justice Department spends money is not the same as legalizing or decriminalizing the conduct, so the parties had still agreed to commit crimes. The court also declined to apply the older Sixth Circuit balancing test that Hello Farms relied on, which weighs the parties’ expectations and the forfeiture that refusing enforcement would cause. It doubted that the test survives Supreme Court precedent and held that it would not apply in any event to an agreement involving serious felonies.

The 2026 rescheduling rule did not save the contract

While the appeal was pending, the Department of Justice issued a final rule in April 2026 moving FDA-approved marijuana products and marijuana covered by a state medical license from Schedule I of the Controlled Substances Act, the category for substances treated as having no accepted medical use, to Schedule III, a category for substances with an accepted medical use and a lower potential for abuse. The court held that the rule “isn’t a safe harbor” for two reasons.

First, under a general contract-law principle, whether a promise is unenforceable on public-policy grounds is judged when the promise is made, and a later change in the law does not ordinarily make it valid. The court noted that Congress or an agency could give existing agreements retroactive validity, but the April 2026 rule did not purport to have retroactive effect, and this contract was signed more than five years before it. Second, the rule does not by itself make transactions like this one legal. It also requires registration with the Drug Enforcement Administration, so the court noted that, even assuming the contract were limited to medical marijuana, the same contract signed today without that registration would still violate federal law.

The court acknowledged how the outcome looks: “Hello Farms may understandably view this outcome as a windfall for Defendants. But our task isn’t to weigh the equities as we might perceive them. At day’s end, we aren’t free to enforce agreements to commit crimes.”

What the court did not decide

Because the illegality ruling ended the case, the court did not address the defendants’ other arguments: that Hello Farms could not recover damages tied to its 2021 recreational sales, and that the evidence did not support a $31.8 million award.

The decision also has limits. It governs federal courts in the Sixth Circuit, which covers Michigan, Ohio, Kentucky, and Tennessee. It does not bind Michigan state courts, and it does not say how a Michigan state court would treat the same contract. It also does not decide whether a contract between businesses holding both state licenses and the new federal registration would be enforceable.

Finally, the case is not over. On October 8, 2026, Hello Farms asked the full Sixth Circuit to rehear the case. As of this writing, the court has not ruled on that request.

What this means for marijuana contracts in Michigan

If your business is a licensed cannabis company, or contracts with one, keep the following in mind:

• A Michigan license is not federal permission. A contract can be fully legal under Michigan law and still be unenforceable in federal court.
• Enforceability is ordinarily judged when you sign. A later change in federal law that is not given retroactive effect may not rescue an agreement that was illegal at the time.
• Contract terms can shape how a court characterizes the deal. Here, a recreational testing clause helped shape the majority’s reading. Together with the absence of any medical-only limit and the buyer’s dual licenses, it led the majority to treat the contract as reaching the recreational market, which kept the medical-marijuana spending provision and the 2026 rule out of the analysis.
• The risk is not limited to growers and dispensaries. The Sixth Circuit cited federal trial-court decisions from other states that refused to enforce agreements to invest in a marijuana business, to buy a marijuana business, to provide cannabis seeds and related services, and to give someone an equity interest in a marijuana business.
• Think about where a dispute would be heard. This case started in state court and ended up in federal court because the parties were from different states. How forum and dispute-resolution provisions would play out in a cannabis contract is a technical question that is worth raising with counsel before signing, not after a dispute starts.
• Do not count on a contract claim as your only protection. Deposits, payment timing, and security for payment matter more when a court may refuse to enforce the deal.

Outside the cannabis industry, the same rule can apply to other agreements that federal law makes unlawful. Courts generally enforce contracts as written, and the court stressed that it does not invalidate them lightly. But a federal court will not enforce an agreement when doing so would enforce “the precise conduct made unlawful” by an explicit and well-defined federal policy.

Frequently asked questions

Are marijuana contracts enforceable in Michigan?

It depends on the court. Under Hello Farms, federal courts in the Sixth Circuit will not enforce a contract claim founded on an agreement to buy or sell marijuana in violation of federal law, even if both parties are licensed in Michigan. The decision does not bind Michigan state courts, and it does not decide how they would rule.

Did the 2026 federal rescheduling of medical marijuana change the result?

Not for this contract. The court held that the April 2026 rule did not apply retroactively to a contract signed in 2020, and that the rule does not by itself legalize a transaction without the required DEA registration.

Does this affect businesses that only lease to or supply cannabis companies?

Possibly. Hello Farms involved a direct supply contract, but the court cited other federal decisions that declined to enforce investment, purchase, and service agreements connected to marijuana businesses. Whether a particular agreement is enforceable will depend on its terms and on how closely it is tied to the marijuana activity.

Is the Hello Farms decision final?

The appellate proceedings are not over. Hello Farms petitioned for rehearing by the full Sixth Circuit on October 8, 2026, and the court has not ruled as of this writing. The panel opinion was recommended for publication and remains precedential, meaning federal courts in the Sixth Circuit must follow it, unless the full court vacates (sets aside) the decision or a higher court overturns it.

Related reading: how a contract lawyer can review an agreement before you sign, when an LLC’s contract binds the owner personally, what to know before you sign a personal guaranty, and working with a Grand Blanc business lawyer.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. Hello Farms Licensing MI, LLC v. GR Vending MI, LLC is a published decision of the U.S. Court of Appeals for the Sixth Circuit, but a petition for rehearing is pending, the law in this area is changing, and outcomes depend heavily on the specific documents and facts; confirm the current law before relying on any summary. You should consult a qualified Michigan attorney about your own circumstances before acting. This content may also be considered attorney advertising.