Marijuana Contracts Are Not Enforceable in Federal Court

Two-dozen states have legalized the adult possession of marijuana under state law. Many more have legalized the possession and use of marijuana for medicinal purposes. Yet marijuana distribution and possession remain illegal under federal law.

The federal government may not devote significant resources toward enforcing federal marijuana prohibition, but the fact that marijuana is illegal under federal law can still have meaningful consequences (though fewer for gun owners than before, thanks to the Supreme Court’s decision in United States v. Hemani).

A case in point that federal marijuana prohibition can have legal significance is today’s decision by the U.S. Court of Appeals for the Sixth Circuit in Hello Farms Marketing MI v. GR Vending MI, holding that a marijuana contract is unenforceable in federal court given the illegal subject matter and throwing out a contrary district court ruling.

Judge Nalbandian summarizes the case in his opinion for the court:

Hello Farms, a Michigan marijuana grower, entered a contract to supply marijuana to Defendants GR Vending and CURA MI. When GR Vending breached, Hello Farms sued. And a jury awarded Hello Farms $31.8 million. Defendants argue that because the contract was illegal under federal law, the district court erred by not granting them judgment as a matter of law on their illegality defense.

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. We reverse

This case underscores a point I have tried to make in my work on this subject (including in my book Marijuana Federalism: Uncle Sam and Mary Jane): If we want to have real marijuana federalism, in which states can experiment productively with different approaches to marijuana, it is not enough for the federal government to do nothing. It must make state experimentation legal, such as by ending the criminalization of conduct that is legal under applicable state law (while continuing to prohibit conduct that is illegal under applicable state law, including interstate trafficking in violation of the such laws). This was the federal government’s approach to alcohol at the end of prohibition, and it is the only way to have a marijuana federalism that is free of the distorting effects of federal prohibition.