Federal Appeals Court Reverses Breach of Contract Judgment for Cannabis Cultivator, Saying Federal Law Prohibited Agreement 

The Sixth Circuit Court of Appeals in Cincinnati, Ohio, reversed a Michigan cannabis cultivator’s $38.1 million judgment against a cannabis retailer due to federal prohibition, MLive reports. Hello Farms Licensing Inc. MI had agreed to sell all of its 2020 and 2021 harvests to the defendants, Curaleaf Holdings, Inc. subsidiaries GR Vending MI, LLC, and CURA MI, but the companies refused to accept any product after the first shipment. 

Hello Farms harvested 16,300 pounds of cannabis in 2020, for which GR Vending MI paid a $2.2 million deposit and accepted the first shipment of about 2,000 pounds. However, in January 2021, the price of cannabis in the state dramatically declined, and GR Vending MI refused additional deliveries, which forced Hello Farms to sell its product to another company at a lower price, according to court documents outlined by MLive. The following year, Hello Farms faced the same situation, but it had produced 37,500 pounds of cannabis that it was forced to sell at reduced prices for other contracts.  

The original deal set a purchase price of $2,000 per pound, but the price was cut to $1,000 per pound under the amended contract. Hello Farms ultimately sued for breach of contract and was initially awarded $38.1 million by a federal jury.  

The defendants asked the judge, Matthew Leitman, to overturn the verdict or grant a new trial, raising the “illegality defense” that marijuana remains illegal under federal law. The appeals panel described Leitman’s rejection of that defense “a close call.” 

“When the parties contracted, federal law made the growth, distribution, and possession of marijuana a crime. Michigan, like many other states, made it a business. But despite the legalization of marijuana in Michigan, federal courts cannot enforce agreements to commit federal crimes.” — Sixth Circuit Court of Appeals decision via MLive

The appeals court also rejected an argument by Hello Farms that it was protected by the Rohrabacher-Farr amendment, which prohibits the use of U.S. Department of Justice funds to interfere with states’ medical cannabis laws. Hello Farms contended that the court wouldn’t be enforcing illegal conduct, rather simply enforcing the sale agreement. 

“But this assertion ignores the obvious,” the appeal court said. “The parties’ agreement was illegal itself. …To perform the contract, Hello Farms had to possess the marijuana with the intent on distributing it to GR Vending – a crime.”