Federal Courts Must Determine CSA Illegality Before Enforcing Marijuana-Adjacent Consulting Contracts

I. Introduction

In Apical Biotek LLC v. Maitri Holdings LLC (3d Cir. Jan. 22, 2026) (nonprecedential), the Court of Appeals for the Third Circuit vacated a summary-judgment decision in a compensation dispute arising from an alleged consulting arrangement connected to Pennsylvania’s medical-marijuana industry. The plaintiffs—Apical Biotek, LLC and its sole member, cannabis consultant Justin Givens—claimed they provided consulting services (including work related to a “tissue culture lab”) in exchange for cash payments and an equity interest in Maitri Holdings, LLC. The defendants—Maitri-affiliated entities operating a tissue culture lab and medical marijuana dispensaries—paid over $541,588.47 for “products, services, and expenses,” but allegedly did not deliver promised equity.

The district court granted defendants summary judgment on breach of contract (for lack of provable damages) and unjust enrichment (because plaintiffs were paid and did not show discounted compensation). On appeal, the Third Circuit raised a different threshold concern: whether a federal court may grant relief on claims grounded in a contract that potentially contemplates conduct violating the federal Controlled Substances Act (“CSA”).

II. Summary of the Opinion

The Third Circuit vacated and remanded, directing the district court to determine whether the alleged contract involved conduct illegal under federal law (e.g., cultivating, manufacturing, or distributing marijuana, a federally controlled substance). If so, the district court must evaluate the consequences—potentially dismissal—because federal courts generally will not enforce illegal contracts or grant relief that would “stamp [judicial] approval” on unlawful activity.

Importantly, the panel did not decide the contract’s legality on the existing record. Instead, it required factual development, including whether the agreement concerned “hemp” (lawful under certain federal definitions) or marijuana (still illegal federally).

III. Analysis

A. Precedents Cited

1. The foundational illegality doctrine: courts will not enforce illegal contracts

  • Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982) (quoting McMullen v. Hoffman, 174 U.S. 639, 654 (1899)): The opinion relies on the long-standing rule that federal courts may not assist parties in “carrying out the terms of an illegal contract” and will not enforce “illegal promises.” This principle frames illegality as a potential threshold bar—one that can supersede merits questions like formation, breach, or damages.
  • McMullen v. Hoffman, 174 U.S. 639, 654 (1899): Cited for the categorical proposition that courts will not “lend [their] assistance in any way” to execute illegal agreements. Judge Matey’s concurrence underscores this maxim as a controlling constraint in marijuana-related contract litigation.

2. Illegality in the context of federal-law conflicts and remedies

  • Hemlock Semiconductor Operations, LLC v. SolarWorld Indus. Sachsen GmbH, 867 F.3d 692, 698-99 (6th Cir. 2017): Used for the proposition that courts decline enforcement where a judgment would order a violation of federal law, and for the severability framing: whether the suit seeks to enforce a legal promise within a contract containing an illegal provision, or a promise that is itself illegal.
  • Sensoria, LLC v. Kaweske, 581 F. Supp. 3d 1243, 1260-61 (D. Colo. 2022): Quoted to support a stricter remedial limitation: even where the relief is “just transfer of money,” federal courts may be unable to “award monetary damages paid from a marijuana asset or income stream” and cannot grant relief that would “vindicate equity in or award profits from” a marijuana business. This case supplies the panel’s key concern that monetary or equity-based relief can still implicate CSA illegality.

3. Marijuana-adjacent contracts: emerging district court approach

  • CCH Acquisitions, LLC v. J&J&D Holdings, LLC, No. 2:23-CV-2983, 2025 WL 601249, at *6 (S.D. Ohio Feb. 25, 2025): Cited for the view that federal courts may reject “marijuana-adjacent contracts” to avoid becoming “complicit” in illegal agreements. The Third Circuit invoked this reasoning to question whether awarding equity value tied to a marijuana enterprise effectively endorses federally unlawful activity.
  • AgriAuto Genetics, LLC v. Harris, No. 22-CV-273-DES, 2023 WL 8371940, at *2-3 (E.D. Okla. Dec. 4, 2023): Cited as an example of dismissal of a cannabis consultant’s contract and unjust enrichment claims because courts cannot issue orders that facilitate CSA violations.

4. State legalization does not resolve federal illegality

  • Commonwealth v. Barr, 266 A.3d 25, 28 (Pa. 2021): Cited to acknowledge Pennsylvania’s limited legalization framework. But the Third Circuit contrasts state legalization with the federal CSA’s continuing prohibition.

5. Remand for illegality/public-policy inquiry in marijuana business disputes

  • Bartch v. Barch, 111 F.4th 1043, 1062-63 (10th Cir. 2024): Cited as a procedural analogue: vacatur and remand to determine whether enforcing a judgment concerning a marijuana business would violate federal law and public policy. This supports the Third Circuit’s chosen remedy—factfinding first, enforceability second.

6. Concurrence: illegality applies even in diversity and is constitutionally anchored

  • Kelly v. Kosuga, 358 U.S. 516, 519 (1959): Judge Matey cites it for the proposition that federal courts will not enforce illegal promises “even in diversity cases,” emphasizing that state-law causes of action cannot compel federal courts to grant remedies that conflict with federal criminal law.
  • Armstrong v. Armstrong (1834) 40 Eng. Rep. 18, 25 and Phillips v. Thorp, 10 Or. 494, 497 (1883): Invoked in the concurrence to reinforce the deep historical pedigree of the illegality doctrine and the idea that unlawful agreements “convey no rights” enforceable in court when parties are equally culpable.

B. Legal Reasoning

1. The panel’s threshold move: enforceability before merits

The district court decided the case on conventional merits grounds—insufficient proof of damages (contract) and lack of inequity (unjust enrichment). The Third Circuit, however, prioritized a potentially dispositive antecedent question: whether the federal judiciary can grant any relief connected to a contract that contemplates CSA-prohibited activity. This reframing reflects a jurisdiction-adjacent, remedial restraint principle: even where a court has subject-matter jurisdiction, it may be barred from providing the requested remedy because doing so would require endorsing or facilitating illegal conduct.

2. The key factual uncertainty: hemp versus marijuana; lawful services versus CSA facilitation

The panel flagged that the record did not clearly establish whether the “plant genetics” and lab-related consulting concerned “hemp” (which plaintiffs argued falls within 7 U.S.C. § 1639o(1)) or marijuana covered by the CSA. The panel also noted that defendants did not argue the contract was illegal, instead contending that adjudicating compensation would not “compel the violation of federal law.” The Third Circuit rejected the idea that the absence of compelled cultivation/sale ends the inquiry, pointing to authority suggesting that awarding damages or equity value connected to a marijuana enterprise can itself be impermissible.

3. Remedy sensitivity: money and equity can still be problematic

A central reasoning thread is remedial: even if a court order merely transfers money or assigns a value to withheld equity, the remedy may still be “paid from a marijuana asset or income stream” or otherwise “vindicate equity in” a federally illegal business (as emphasized by Sensoria, LLC v. Kaweske). Thus, the court treats the requested relief—particularly equity-based compensation—as potentially inseparable from the alleged illegal enterprise.

4. Why remand, not outright dismissal

Rather than decide illegality on appeal, the panel required factfinding: what precisely did the contract cover, what business activity did it support, and how directly does the requested relief depend on CSA-prohibited operations? This approach mirrors Bartch v. Barch and reflects the panel’s recognition that illegality determinations can be record-intensive (including questions of severability and the source of funds/assets for satisfaction of a judgment).

5. The concurrence: a sharper warning to litigants

Judge Matey’s concurrence frames the case as implicating potential conspiracy under 21 U.S.C. § 846 when a consultant helps “design and implement” operations for a medical marijuana business. The concurrence emphasizes constitutional supremacy (U.S. Const. art. VI) and signals that, if the “case and controversy turns on controlled substances,” district courts should conduct a “rigorous inquiry” and likely dismiss promptly. While not the panel’s holding, the concurrence points toward a stricter, less remedially flexible posture in future cases.

C. Impact

1. Practical effect: illegality screening becomes a front-end litigation issue

The decision pressures parties litigating marijuana-adjacent contracts in federal court—especially in diversity—to address CSA illegality early and with evidence. Plaintiffs cannot assume state legalization will suffice, and defendants cannot assume a “mere money dispute” framing will avoid enforceability scrutiny.

2. Increased importance of contract design and severability

Because the opinion highlights severability (via Hemlock Semiconductor Operations, LLC v. SolarWorld Indus. Sachsen GmbH), parties may attempt to structure agreements to segregate arguably lawful components (e.g., generic business consulting, IP work, or hemp-related services) from marijuana-touching performance. But the opinion also signals that severability may not cure remedies that effectively monetize or transfer interests in federally prohibited operations.

3. Forum and remedy selection

Even when state law recognizes marijuana businesses, federal courts may decline enforcement. The opinion therefore may push disputes into state courts (though state judges are also “bound” by federal law, as the concurrence notes) or into alternative dispute resolution. It may also incentivize plaintiffs to plead and prove (i) hemp-only work, (ii) services unrelated to CSA-prohibited conduct, and (iii) remedies not traceable to marijuana revenue streams—though the viability of such strategies will depend on facts and evolving case law.

4. Doctrinal trajectory: convergence with district-court skepticism

By citing CCH Acquisitions, LLC v. J&J&D Holdings, LLC and Sensoria, LLC v. Kaweske, the Third Circuit aligns itself with a growing body of federal decisions that treat marijuana-adjacent contract enforcement as institutionally problematic. While nonprecedential, the opinion functions as a strong signal to district judges within the Circuit to develop factual records on CSA implications and consider dismissal where relief would entangle the judiciary with federally proscribed commerce.

IV. Complex Concepts Simplified

  • “Illegal contract” (in federal court): A contract may be unenforceable if its performance requires violating federal law. Courts generally will not award relief that would help complete or profit from illegal activity.
  • Controlled Substances Act (CSA): Federal statute criminalizing, among other things, manufacturing, distributing, or dispensing marijuana. State legalization does not change marijuana’s federal status unless federal law changes.
  • Severability: The idea that a contract containing an illegal provision might still be partially enforceable if the illegal part can be separated from the legal part. But even a “legal” payment obligation may be unenforceable if the remedy would effectively draw from, validate, or transfer value derived from illegal operations.
  • “Marijuana-adjacent” contract: An agreement not necessarily to sell marijuana itself, but to provide services, capital, consulting, or equity arrangements supporting a marijuana business. Courts may still treat such agreements as too intertwined with federally illegal conduct.
  • Hemp versus marijuana: “Hemp” can be lawful under federal definitions (referenced here via 7 U.S.C. § 1639o(1)), whereas marijuana remains a federally controlled substance. The classification can determine enforceability.

V. Conclusion

Apical Biotek LLC v. Maitri Holdings LLC establishes (at least as a persuasive, nonprecedential signal) a clear procedural and substantive lesson: before federal courts resolve marijuana-industry compensation disputes on ordinary contract grounds, they must determine whether the underlying agreement and requested remedy would entangle the judiciary in CSA-prohibited activity. The Third Circuit’s vacatur-and-remand approach requires factual development on legality (including hemp-versus-marijuana questions and remedy sourcing) and authorizes dismissal where enforcement would effectively approve or monetize federally unlawful conduct. Judge Matey’s concurrence reinforces that message, warning that marijuana-related contract claims in federal court should expect rigorous scrutiny and, where controlled substances are central, dismissal.