This Cannabis Offtake Agreement Produced A $31.8 Million Verdict. Then A Federal Court Wiped It Out.

A Michigan cultivator won $31.8 million from a jury, then lost all of it on September 10 because the contract it sued over required both sides to break federal law. The U.S. Court of Appeals for the Sixth Circuit reversed the award outright in Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, and marked the opinion Recommended for Publication, which makes it binding precedent in Michigan, Ohio, Kentucky and Tennessee. If you supply product under contract in any of those states, the paper in your file cabinet is worth less than it was last week.

In November 2020, GR Vending MI and CURA MI, both subsidiaries of Curaleaf Holdings, signed an outputs contract to buy every pound Hello Farms grew in its 2020 and 2021 harvests. CURA MI guaranteed the deal. GR Vending paid a $2.2 million deposit and took a first shipment of roughly 2,000 pounds. Then wholesale prices collapsed, and by January 2021 the company stopped accepting deliveries.

Hello Farms had produced about 16,300 pounds that year, all of it passing required testing. It sold the rest of the harvest to a third party at lower prices, expanded from 7 to 25 acres, grew roughly 37,500 pounds in 2021 and sold that at lower prices too. A federal jury in the Eastern District of Michigan found Curaleaf's units liable and awarded $31.8 million in lost profits. District Judge Matthew Leitman rejected the illegality defense twice, calling it a close call. The appeals panel did not think it was close.

Because federal courts will not order anyone to pay for performance that the Controlled Substances Act makes a felony. Writing for the panel, Judge Nalbandian put it bluntly: on the face of the contract, the parties promised to commit felonies. Growing with intent to distribute, distributing, and then possessing with intent to dispense are each separate crimes under 21 U.S.C. 841, and the court walked through all three.

Hello Farms argued this was a medical marijuana deal, which would pull in the Rohrabacher-Farr Amendment, the annual appropriations rider that bars the Justice Department from spending money to interfere with state medical programs. The court rejected the framing on the contract's own text. The agreement required product to pass recreational testing requirements, and GR Vending held both medical and recreational licenses, so Michigan law let it move that inventory into the adult-use market.

Then the panel went further and said the outcome would be the same either way. The rider restricts prosecution funding. It does not decriminalize anything, and if Congress restored the funding tomorrow, the only shield left would be the five-year statute of limitations.

No, and that is the finding operators should read twice. The Justice Department's April 2026 final rule moved FDA-approved marijuana products and state-licensed medical marijuana to Schedule III. The court held it does not rescue the 2020 contract for two reasons. A contract's legality is judged when it is made, and the rule was not retroactive. More importantly, the rule requires DEA registration to grow or distribute medical marijuana lawfully. Sign the same contract today without that registration and you are still outside federal law.

The panel also brushed aside the Supreme Court's observations in Hemani about declining federal marijuana enforcement, noting that the U.S. Sentencing Commission still recorded 386 federal sentences for marijuana trafficking in 2025.

It changes what a signature is worth. A buyer who no longer wants your product has a defense the court says it must honor even if the buyer never raises it, and the judges acknowledged the ruling hands a windfall to the party that breached. Sales, cultivation and finance teams have been underwriting harvests against contracts that assumed a courthouse backstop. In four states, that backstop is gone.

What to change now:

The cruel logic here is that the more federally exposed your business is, the less protection you get when someone stiffs you. Hello Farms may petition for rehearing or take it to the Supreme Court, and other circuits have not all landed in the same place. Until one of those things happens, assume your contract will be enforced by the market, your deposit terms and your leverage, not by a judge.

Which states does this ruling bind? The Sixth Circuit covers Michigan, Ohio, Kentucky and Tennessee. Because the opinion is published, federal courts in those four states must follow it.

Does this apply to ancillary vendors like packaging or software companies? Not directly. The holding targets agreements whose performance is itself a federal crime. The court noted district courts have refused to enforce deals more tangentially related to marijuana, including agreements to invest in or buy a cannabis business, so ancillary companies with equity or revenue-share exposure should still talk to counsel.

Can I still sue in state court? State courts are not bound by this decision and many have enforced cannabis contracts. That is exactly why venue language matters now.

Would DEA registration have saved the deal? Under the April 2026 rule, a medical marijuana transaction by DEA-registered parties sits differently. The court raised registration specifically as the missing piece, though it was addressing a 2020 contract and did not rule on what a fully registered deal would look like today.