Federal Illegality Bars Enforcement of State-Legal Marijuana Supply Contracts in Federal Court (RFA and Rescheduling Do Not Cure)

Case: Hello Farms Licensing MI, LLC v. GR Vending MI, LLC (with CURA MI, LLC)
Court: United States Court of Appeals for the Sixth Circuit
Date: September 10, 2026 (Recommended for Publication)

I. Introduction

This appeal arises from a large commercial cannabis supply arrangement formed in Michigan’s state-licensed marijuana market during a period when, under federal law, marijuana remained prohibited by the Controlled Substances Act (CSA). Plaintiff-Appellee Hello Farms Licensing MI, LLC (“Hello Farms”), a Michigan marijuana grower, entered an “outputs” contract to supply marijuana to Defendants-Appellants GR Vending MI, LLC (“GR Vending”) and CURA MI, LLC (“CURA MI”) (a guarantor). After GR Vending refused to accept further deliveries amid a market price collapse, Hello Farms sued for breach of contract and obtained a jury verdict of $31.8 million.

The central question on appeal was not breach or damages in the ordinary sense, but whether a federal court may enforce (via damages) a contract whose performance entails conduct that federal statutes treat as criminal. Specifically, Defendants pressed a federal illegality defense: because the contract required marijuana distribution and related conduct prohibited by the CSA, the district court allegedly lacked authority to enforce the bargain—even though Michigan law authorized the underlying business activity.

The Sixth Circuit reversed, holding that federal courts cannot enforce contract claims founded on agreements to traffic marijuana in violation of federal law. The court further explained why neither the Rohrabacher-Farr Amendment (RFA) appropriations rider (addressing medical marijuana enforcement) nor the April 2026 federal rescheduling rule (moving certain medical marijuana to Schedule III) changed the analysis for this contract.

II. Summary of the Opinion

The Sixth Circuit (Nalbandian, J.; Siler, J., concurring; Hermandorfer, J., concurring in all but Part II.A.1) held that Hello Farms’ claim for lost profits is founded on an agreement whose performance requires violating the CSA. Under longstanding Supreme Court doctrine, federal courts have a duty to determine whether a contract violates federal law before enforcing it, and must refuse enforcement where a judgment would “itself be enforcing the precise conduct made unlawful.”

Key holdings include:

  • The contract was not limited to medical marijuana. The agreement required compliance with “state recreational cannabis testing requirements,” and GR Vending held both medical and recreational licenses, allowing the marijuana to be introduced into recreational channels under Michigan’s regulatory scheme.
  • Because the bargain encompassed recreational marijuana, the RFA and April 2026 rescheduling were irrelevant to the enforceability inquiry. Federal policy against recreational marijuana trafficking, as embodied in the CSA, is “explicit and well-defined.”
  • Even if the contract were treated as medical-only, enforcement would still be barred. The RFA (assumed without deciding to bar DOJ expenditures for certain prosecutions) does not decriminalize or legalize medical marijuana, and rescheduling does not retroactively validate a previously illegal contract; moreover, the rescheduling rule still requires DEA registration and FDA-related compliance for lawful distribution.
  • The court rejected an attempt to reframe enforcement as merely a “transfer of money.” Damages would still “lend aid” to realizing the fruits of an illegal agreement.
  • The panel questioned the continuing validity of equitable “balancing” (as in Jackson Purchase Rural Elec. Co-op. Ass'n v. Loc. Union 816) after Kaiser Steel Corp. v. Mullins, and held that even under the Restatement framework, agreements involving serious crimes are plainly unenforceable.

The court reversed the denial of judgment as a matter of law and did not reach Defendants’ alternative arguments on partial enforceability/damages scope or sufficiency of evidence.

III. Analysis

A. Precedents Cited (and How They Shaped the Decision)

1. Federal supremacy and the CSA’s baseline illegality

  • Gonzales v. Raich — Cited for the proposition that marijuana is “contraband for any purpose” under the CSA when classified as Schedule I, reinforcing that federal law criminalizes manufacture/distribution/possession irrespective of state legalization. The court used Raich to underscore that state-law legalization does not negate CSA prohibitions.
  • United States v. Shabani — Cited for the rule that conspiracy under 21 U.S.C. § 846 lacks an overt-act requirement. This supported the opinion’s point that agreements to violate the CSA can themselves be criminal, even before further conduct is proven.

2. The federal illegality defense: duty to refuse enforcement

  • Kelly v. Kosuga — Supplies the controlling test phrase: federal courts cannot enforce a contract when doing so would “itself be enforcing the precise conduct made unlawful.” The Sixth Circuit distinguished Kelly (enforcing a “lawful sale” separable from alleged Sherman Act violations) because the marijuana bargain here was illegal on its face and not severable into an “intelligible economic transaction” apart from the illegality.
  • Kaiser Steel Corp. v. Mullins — The doctrinal backbone. It establishes (i) the federal court’s “duty” to evaluate federal illegality before enforcement, and (ii) the principle that courts refuse enforcement not to benefit defendants but because public policy demands it. The opinion repeatedly returns to Kaiser Steel to reject “equitable” or “money-only” workarounds.
  • McMullen v. Hoffman and Holman v. Johnson — Anchors for the maxim that courts will not “lend [their] aid” to claims founded on illegal or immoral acts. The Sixth Circuit invoked these to show the rule’s historical pedigree and categorical character.
  • Cont'l Wall Paper Co. v. Louis Voight & Sons Co. — Used to rebut the argument that damages are different because they involve only payment. Even where the underlying transaction (e.g., sale of goods) is otherwise lawful, courts will not enforce payment obligations that would realize the fruits of an illegal scheme (there, combination-fixed prices; here, marijuana trafficking).
  • Sola Elec. Co. v. Jefferson Elec. Co., Associated Press v. Taft-Ingalls Corp., and Erie R.R. Co. v. Tompkins — These frame the choice-of-law point: even in diversity cases post-Erie, the effect of illegality under a federal statute is a matter of federal law. That doctrinal move prevents state contract policy from overriding federal statutory policy in federal court.

3. The “explicit and well-defined” policy constraint (limiting judicial invention of policy)

  • FDIC v. Aetna Cas. & Sur. Co., Muschany v. United States, and United Paperworkers Int'l Union v. Misco, Inc. — These authorities are used to cabin “public policy” analysis: courts may rely only on “explicit” and “well defined” policies embodied in statutes and precedents, not freewheeling notions of public interest. This mattered because Hello Farms invited the court to treat congressional funding riders and shifting enforcement realities as de facto legalization.

4. Severability vs. contracts illegal on their face

  • Hemlock Semiconductor Operations, LLC v. SolarWorld Indus. Sachsen GmbH — Provided the Sixth Circuit’s framework distinguishing (i) enforcement of a lawful, separable transaction despite tainted provisions from (ii) nonenforcement where the agreement sought to be enforced is itself illegal. The court placed this outputs contract in the latter category.
  • N. Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co. — Cited to distinguish cases where a lawful contract exists but a party commits illegal acts in performance. Here, the court found the illegality was not incidental to performance; performance was the illegality.

5. Marijuana appropriations rider litigation (RFA) and its limits

  • United States v. McIntosh, United States v. Pisarski, United States v. Stacy, United States v. Bilodeau, and United States v. Sirois — These cases supply the (non-Sixth Circuit) interpretation that the RFA limits DOJ spending on certain prosecutions where conduct complies with state medical-marijuana law. The Sixth Circuit treated this line as, at most, a prosecution-funding constraint—not a change to the CSA’s substantive illegality—and emphasized that it did not need to define the RFA’s reach to decide this contract dispute.
  • United States v. Trevino — A key Sixth Circuit reference used to reinforce that the RFA does not legalize the conduct prohibited by the CSA. The panel borrowed Trevino’s logic to reject attempts to analogize RFA-shielded conduct to non-criminal “unlawfulness.”
  • Ne. Patients Grp. v. United Cannabis Patients & Caregivers of Me. — Cited for the proposition that the RFA “does not in fact repeal the CSA as to medical marijuana,” supporting the court’s refusal to treat the rider as a substantive legalization.
  • United States v. Nixon — Used as a vivid illustration that the RFA does not bind courts or other non-DOJ actors; probation conditions still require compliance with federal law. This supports the court’s broader theme: an appropriations rider is not a general legal safe harbor.

6. Attempts to avoid illegality by characterizing relief as “only money”

  • Bartch v. Barch, Polk v. Gontmakher, and Bassidji v. Goe — The opinion notes that some courts have suggested money judgments might be less problematic. The Sixth Circuit rejected that approach as inconsistent with the longstanding “no aid” principle reflected in Cont'l Wall Paper Co. v. Louis Voight & Sons Co. and Kaiser Steel Corp. v. Mullins.

7. Conspiracy / buyer-seller arguments

  • United States v. Wheat — Hello Farms invoked Wheat to argue that a buyer-seller relationship does not necessarily establish a § 846 conspiracy. The court narrowed Wheat: repeated large-quantity purchases can imply a tacit resale agreement. Importantly, the court emphasized that it did not need a § 846 conspiracy to find unenforceability; § 841 illegality was sufficient.

8. Whether the defense can be raised (and by whom)

  • Coppell v. Hall — Invoked for the principle that when illegality appears, it is “fatal” regardless of which side’s evidence reveals it and regardless of defendant consent, reinforcing the court’s view that federal courts have an independent obligation to avoid enforcing illegal undertakings.
  • Apical Biotek, LLC v. Maitri Holdings, LLC — Cited as a modern example recognizing the court’s duty to refuse enforcement even absent a pleaded defense, echoing the non-waivable character of the doctrine.

9. The Sixth Circuit’s skepticism of “balancing” tests

  • Jackson Purchase Rural Elec. Co-op. Ass'n v. Loc. Union 816 — The district court relied on Jackson Purchase to apply a Restatement-style multi-factor balancing test. The Sixth Circuit questioned whether that approach survived Kaiser Steel, noting that Kaiser Steel emphasized categorical nonenforcement “without regard to the interests of individual parties.”
  • Weil v. Neary — Used to reject “no harm, no foul” reasoning; enforcing illegal contracts even when “actual evil does not follow” can undermine safeguards and prevention.
  • Anderson v. Int'l Union, United Plant Guard Workers of Am. — Cited to show the Sixth Circuit’s modern practice of addressing illegality defenses without deploying Jackson Purchase balancing.
  • Mullins v. Kaiser Steel Corp. — Referenced to show that the Supreme Court reversed a lower court that had entertained “considerations of equity and relative fault,” undermining Jackson Purchase-style balancing.

10. “Change in law” and retroactivity principles

  • Licznerski v. United States — Cited as adopting the general principle that subsequent legal changes do not ordinarily validate a contract illegal when made. This supported rejecting arguments that the April 2026 rescheduling should retroactively sanitize a 2020 contract.

11. The “political branches” theme and rejection of judicial policymaking

  • Am. Cas. Co. of Reading, Pa. v. FDIC, Kimble v. Marvel Ent., LLC, and Bd. of Trs. of Univ. of Ala. v. Garrett — These authorities reinforce the opinion’s institutional point: courts do not create public policy exemptions from statutes; Congress does.

12. The court’s discussion of modern enforcement realities

  • United States v. Hemani and Standing Akimbo, LLC v. United States — The court acknowledged the Supreme Court’s observations about reduced federal enforcement and rising public acceptance but treated these as sociological facts, not changes in legal status.
  • Feinberg v. C.I.R. — Used to reassert that “it’s Congress that passes the laws,” and executive enforcement priorities cannot turn federal illegality “off and on.”

13. Lower-court cannabis contract cases as persuasive context

The court aligned itself with a growing body of district court decisions declining to enforce cannabis-related contracts, even when the contract is tangential to marijuana commerce:

  • Kornea v. Miller
  • CCH Acquisitions, LLC v. J&J&D Holdings, LLC
  • AgriAuto Genetics, LLC v. Harris
  • J. Lilly, LLC v. ClearSpan Fabric Structures Int'l, Inc.
  • Polk v. Gontmakher

B. Legal Reasoning

1. The governing rule: federal courts must not enforce illegal undertakings

The opinion applies a structured federal-law inquiry:

  • Step 1: Identify the “explicit and well-defined” federal policy. The CSA criminalization of marijuana trafficking (and related possession with intent) supplies a clear policy.
  • Step 2: Decide whether enforcing the claim would “itself be enforcing the precise conduct made unlawful.” Lost profits are “measured by” the illegal promised performance (distribution and downstream distribution/dispensing).
  • Step 3: Determine whether the plaintiff seeks to enforce a separable lawful transaction. The court rejects severability: the sale-and-distribution of marijuana is the contract’s core.

2. Contract classification mattered, but not in Hello Farms’ favor

A key move was factual-legal classification of the bargain. Hello Farms argued “medical-only” to invoke the RFA’s perceived protective effect. The Sixth Circuit found the contract’s text and regulatory context inconsistent with that framing:

  • The contract required marijuana to pass “state recreational cannabis testing requirements,” which signaled an expectation of recreational-channel suitability.
  • GR Vending’s dual licensing, and Michigan’s allowance of medical-to-recreational inventory transfers (as cited by the court), meant the marijuana could lawfully flow into recreational sales under state law—making the bargain functionally supply for both markets.

This classification had a doctrinal payoff: because the contract encompassed recreational marijuana, the RFA and the April 2026 rescheduling—both tied to medical marijuana—were not the relevant federal-policy inputs.

3. “It’s just money” is not a solution

The court rejects the formalism that a damages judgment is merely a neutral transfer of money. The doctrine looks to whether the court is aiding realization of illegal “fruits,” not whether the remedial act (payment) is itself intrinsically unlawful. The court reasons that GR Vending’s duty to pay was conditional upon Hello Farms providing marijuana; thus damages necessarily enforce the value of illegal performance.

4. Even a medical-only reframing would fail

The opinion provides alternative reasoning (dicta-like but developed) to foreclose a “medical-only” salvage:

  • RFA is not legalization. Even if it limits DOJ spending, it does not amend the CSA or eliminate criminality; it is limited, temporary, and does not bind the judiciary (illustrated by United States v. Nixon).
  • Rescheduling is not retroactive validation. The court adopts the general contract principle that legality is assessed at formation; a later change ordinarily does not resurrect an illegal bargain.
  • Rescheduling is not a full safe harbor anyway. The rule still requires DEA registration and FDA-related prerequisites for lawful medical distribution—conditions not present in the parties’ 2020 arrangement.

5. Skepticism of equitable balancing in criminal-illegality settings

The court challenges reliance on Jackson Purchase Rural Elec. Co-op. Ass'n v. Loc. Union 816 for a multi-factor balancing test, suggesting Supreme Court precedent favors a categorical approach where enforcement would further illegal conduct. Even if balancing survived, the court reasons that agreements to commit serious crimes are plainly unenforceable under the Restatement’s own commentary.

C. Impact

1. Federal forum risk for cannabis contract enforcement

The immediate practical impact is stark: in the Sixth Circuit, contract claims for damages grounded in marijuana sales/distribution (especially where recreational channels are implicated) are at serious risk of dismissal/Rule 50 reversal in federal court on federal illegality grounds—even if the conduct is fully licensed and regulated under state law.

This increases the importance of:

  • Forum selection planning. Parties may attempt to avoid federal court through careful jurisdictional structuring; however, diversity jurisdiction and removal can be difficult to control.
  • Contract architecture. Attempts to isolate “lawful” components (e.g., equipment leases, IP licensing, management services) must confront the court’s focus on whether the claim is ultimately “measured by” illegal marijuana trafficking.

2. Limits of relying on appropriations riders and enforcement discretion

The opinion rejects the idea that congressional spending limits (RFA) or shifting executive priorities can be treated as substantive legalization for contract enforceability. That stance may influence future litigants seeking to ground enforceability on “toleration” rather than statutory change.

3. Rescheduling does not automatically solve legacy-contract problems

By emphasizing (i) non-retroactivity, and (ii) continuing regulatory prerequisites (DEA/FDA), the decision suggests that even after federal scheduling changes, many cannabis contracts—particularly older ones—may remain unenforceable in federal court if formed when performance was unlawful and if parties lacked federally required authorizations.

4. Pressure toward congressional clarity

The court’s repeated refrain—policy belongs to Congress—implicitly invites legislative resolution (e.g., descheduling, safe-harbor statutes, or explicit civil-enforcement provisions). Until then, state-legal markets may continue to face federal civil-enforcement friction.

IV. Complex Concepts Simplified

  • “Federal illegality defense”: A rule that a court will not enforce a contract (or award damages for its breach) if doing so would aid conduct that federal law makes illegal.
  • “Explicit and well-defined public policy”: Courts cannot refuse enforcement based on vague moral notions; they look to clear policies stated in statutes and precedents (here, the CSA).
  • RFA (Rohrabacher-Farr Amendment): A budget rider restricting DOJ spending to interfere with certain state medical marijuana programs; it does not repeal the CSA or make marijuana lawful under federal law.
  • “Rescheduling” (Schedule I to Schedule III): A regulatory reclassification under the CSA that can change legal treatment for certain products/uses, but may still require federal registrations and approvals—and typically does not retroactively validate earlier illegal conduct or contracts.
  • “Severability / separable transaction”: Sometimes a court can enforce the lawful portion of a broader deal if it is economically and legally distinct from the illegal promise. The court held this contract was not separable because the entire bargain centered on marijuana distribution.
  • Rule 50 “judgment as a matter of law”: A post-trial mechanism allowing a court to set aside a jury verdict if the law requires a different result even taking the evidence in the verdict winner’s favor.

V. Conclusion

Hello Farms Licensing MI, LLC v. GR Vending MI, LLC establishes a clear Sixth Circuit statement for cannabis commerce disputes: federal courts may not enforce, through damages or otherwise, contract claims founded on agreements whose performance entails violating the CSA’s marijuana trafficking prohibitions. The panel treated the CSA as an “explicit and well-defined” federal policy that categorically bars judicial aid, rejected attempts to repackage enforcement as a mere monetary transfer, and refused to treat the RFA or shifting federal enforcement priorities as substantive legalization.

The decision’s broader significance is its reaffirmation of institutional boundaries: absent congressional change, federal courts will not act as civil-enforcement backstops for state-licensed marijuana markets when the bargain remains federally unlawful.