Curaleaf Erased a $31.8 Million Verdict by Arguing Its Own Cannabis Deal Was a Crime

At about 9:26 on the morning of Monday, July 29, 2024, U.S. District Judge Matthew F. Leitman took the bench in the Theodore Levin U.S. Courthouse in Detroit and called case No. 21-10499, Hello Farms Licensing MI v. GR Vending MI. Patrick Lannen appeared for the grower; William Berndt of Honigman appeared for two Michigan subsidiaries of Curaleaf Holdings, the multistate operator that had signed up in November 2020 to buy every pound of cannabis Hello Farms grew in its 2020 and 2021 harvests. (S2, S1)

The defense Berndt had come to argue was blunt. Curaleaf's units said the supply deal could not be enforced because growing and selling marijuana is a federal felony, no matter what Michigan law allows. Leitman ruled against them and then turned to the company itself. The lawyer was only doing his job, the judge said; his criticism was aimed squarely at the client. (S2)

Leitman called Curaleaf's position, given its business, "hypocrisy and illegal gamesmanship." Seven months later a federal jury awarded Hello Farms $31.8 million. On September 10, 2026, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit erased all of it, adopting the argument Leitman had scorned. (S2, S1, S6)

That ruling now binds every federal court in Michigan, Ohio, Kentucky and Tennessee, and it reaches well past one grower's bad year. In a published opinion by Circuit Judge John Nalbandian, the panel held that "federal courts cannot enforce agreements to commit federal crimes," that a medical-marijuana label does not save a contract, and that the federal government's April 2026 move of state-licensed medical marijuana to Schedule III does not reach back to rescue deals signed before it. (S1, S10)

On October 8, Hello Farms asked the panel and the full court to rehear the case, with former acting U.S. solicitor general Neal Katyal signing as counsel of record. On October 15, the NORML Legal Committee filed a friend-of-the-court brief backing the petition. At stake are the supply agreements, seller notes and guaranties that assume a court will make the other side pay. (S9, S4, S5)

The deal itself was ordinary. According to the Sixth Circuit's account of the record, GR Vending agreed to buy Hello Farms' whole 2020 and 2021 output, with its sister company CURA MI as guarantor, and paid a $2.2 million deposit. The contract anticipated 12,000 to 15,000 pounds from the 2020 harvest. Hello Farms tested every 50-pound batch for potency, heavy metals and pesticides, and the buyer had to take the product as batches passed. (S1)

The 2020 crop came in at about 16,300 pounds, and all of it passed the testing the contract required. GR Vending accepted a first shipment of about 2,000 pounds. Then wholesale prices collapsed. By January 2021, the opinion says, "the price of marijuana was in freefall," and GR Vending refused further deliveries. Hello Farms sold the rest of the 2020 crop to a third party at lower prices, expanded from 7 to 25 acres, added adult-use growing licenses and sold its roughly 37,500-pound 2021 harvest to the same buyer, again below the contract price. (S1)

Hello Farms sued for breach in Michigan state court in February 2021. The Curaleaf units removed the case to federal court on diversity grounds, filed counterclaims of their own and raised the illegality defense from the start. Leitman denied it at summary judgment and again after trial, calling it a close call but holding that the contract was a medical-marijuana deal and that Congress's annual Rohrabacher-Farr spending rider signals federal tolerance of state medical markets. Hello Farms says $5 million in interest was added in May 2025. (S1, S2, S6)

On appeal, Curaleaf's units, argued by Andrianna Kastanek of Jenner & Block, pressed the point without apology. Their brief said that because federal law makes marijuana illegal, "all parties to any contract for the cultivation and distribution of marijuana necessarily assume and shoulder the attendant risks." It described the parties' plan to move more than 53,000 pounds as a criminal violation of the Controlled Substances Act. It also argued, in the alternative, that the 2021 damages were a "massive windfall" because Hello Farms offered no solid evidence of that harvest's potency and because, by the defense's account, part of it was contaminated with pesticides. (S3, S1)

The panel accepted the first argument and never reached the others. Nalbandian's opinion held that nothing in the contract limited it to medical cannabis. It pointed to a clause requiring the product to pass "recreational" testing and to GR Vending's adult-use retail license. Federal policy against recreational marijuana, the court wrote, is explicit, so enforcing the deal would enforce a promise to commit felonies. Circuit Judge Hermandorfer did not join that part of the opinion. He joined the alternative holding, which reached the same result even if the deal were medical-only, so the reversal was unanimous. (S1)

The alternative holding is the part that worries lawyers outside Michigan. The rider bars the Justice Department from spending money to block state medical programs, the court said, but it legalizes nothing. Under general contract law, enforceability is judged when the promise is made, and the April 28, 2026 rescheduling rule claims no retroactive effect. Even now, the panel noted, a state-licensed medical operator needs DEA registration to grow or distribute lawfully. The court added that its rule runs both ways: had Hello Farms breached, the buyer's suit would have failed too. (S1, S10)

Jason Adelstone, an attorney with Harris Sliwoski, told MJBizDaily that the precedent puts smaller companies that sell to publicly traded operators at particular risk. "I would expect just about any MSO to take the same approach under similar circumstances, particularly one with shareholders to answer to," he said. A Curaleaf spokesperson did not comment on the record to that publication. (S7)

“the position taken by the defendants in this case, given their business and what I understand of them, is really, it seems to me, to be hypocrisy and illegal gamesmanship.”

— Matthew F. Leitman, U.S. District Judge, Eastern District of Michigan, hearing transcript, July 29, 2024

Not every lawyer thinks the panel erred. Irina Dashevsky, a Chicago partner who co-chairs Greenspoon Marder's cannabis practice, told MJBizDaily the ruling "sets a negative precedent for the industry, but it is consistent with existing legal principles." Illegality, she said, has hung over cannabis contracts for years, and a court reaching this result was foreseeable. She expects more companies to use the defense to escape deals that stop paying off, though she said most contracts are likely safe. The opinion itself concedes the defense is, in the Supreme Court's 1899 phrase, "a very dishonest one," and applies it anyway because, it says, public policy demands it. (S7, S1)

NORML's brief, led by Detroit attorney William Swor, argues from the consumer's side. Michigan requires potency and contaminant testing in both its medical and adult-use markets, and the Hello Farms contract built that testing into the buyer's obligation to pay. Take away the remedy, the brief says, and suppliers must absorb the risk, demand different terms or walk away, with costs that land on patients. "The interest of NORML here is not in protecting a particular company's profits," the brief states. (S4, S5)

The rehearing petition goes after the panel's method. According to a review by Ashley Brandt of the Libation Law Blog, it argues that the Controlled Substances Act, unlike the labor statute in the Supreme Court's 1982 Kaiser Steel decision, never voids private contracts on its face. It also says the panel created a conflict with the Sixth Circuit's own 1981 Jackson Purchase precedent, which weighs forfeiture and the parties' expectations. Brandt reports the petition calls the ruling a "heads I win, tails you lose" option for any out-of-state buyer able to remove a case to federal court. The cannabis.inc newsroom has not obtained the petition itself. (S9, S1)

Michael A. Rosenblum of Thompson Coburn, writing for clients, framed the practical lesson in one line: where a cannabis dispute is decided may now matter more than what the contract says. His firm's list of fixes runs from shorter, lot-by-lot purchase orders in place of whole-harvest commitments to escrows and holdbacks in acquisitions, since seller notes and earnouts depend on future enforcement. (S10, S1)

1. Pending: the Sixth Circuit decides whether to grant panel rehearing or rehearing en banc on Hello Farms' October 8 petition.
2. If rehearing is denied, Hello Farms' attorney has told MJBizDaily the grower will seek U.S. Supreme Court review.
3. November 5, 2026: the earliest date the DEA's paused proceeding on broader rescheduling can resume, according to CRB Monitor's reading of the administrative judge's order.
4. Any federal rule that gave existing cannabis contracts retroactive validity would change the analysis; the panel noted Congress or an agency could do so, and the April 2026 rule did not.

Lannen has spent almost six years on this case, from a state courthouse in Arenac County to the federal courthouse in Detroit to the Sixth Circuit. What he told MJBizDaily is the argument now headed to the full court. "If what they're saying is true, there is no legal marijuana anywhere," he said. State courts, he added, are enforcing these contracts where cannabis is legal, and by the panel's logic they should not be. (S7, S8)

The Sixth Circuit closed with an old rule from contract law: "We leave the parties as we find them." For Hello Farms, that means a grower that harvested about 53,800 pounds over two seasons, sold most of it at lower prices to someone else, and holds a verdict a federal appeals court says it cannot collect. For Curaleaf's units, it means the $2.2 million deposit and the federal defense Leitman called hypocrisy both stay where they are, unless the full court decides the judge in Detroit was right. (S1, S2)

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