Hello Farms Seeks Rehearing Over the Sixth Circuit’s Cannabis Contract Escape Route
When we wrote about the Sixth Circuit’s cannabis contract decision last month, the concern was what the decision allowed a buyer to accomplish: enter a licensed commercial transaction, abandon its purchase commitment when the market turned, and then invoke federal marijuana law to avoid liability for the breach. Hello Farms has now asked the court to reconsider, and its petition develops several of the same objections we raised about contract avoidance, federal policy, and the incentive to move these disputes into federal court.
The October 8 petition seeks both panel rehearing and rehearing en banc in Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, No. 25-1759. It is signed by former Acting Solicitor General Neal Katyal, a familiar name to listeners of Amarica’s Constitution, who appears as counsel of record for the rehearing effort. The filing asks the court to examine whether its approach conflicts with Supreme Court precedent, the Sixth Circuit’s own decisions, and the methods other federal appellate courts use to evaluate an illegality defense.
The underlying dispute involved a commitment to purchase Hello Farms’ marijuana harvests. After the buyer refused further deliveries, the grower sold to another purchaser at lower prices and obtained a $31.8 million jury verdict for breach. That distinction remains important: the award represented damages from the broken purchase commitment, rather than an unpaid bill for $31.8 million of marijuana the buyer had received. The panel reversed on federal-illegality grounds, allowing the buyer and its guarantor to avoid the contractual liability the jury had found. (Opinion at 5–6.)
One of the petition’s strongest arguments concerns the difference between a statute prohibiting particular conduct and a statute prohibiting the contract itself. Our original post noted that the labor statute considered in Kaiser Steel expressly invalidated certain agreements, while the Controlled Substances Act (CSA) does not contain a comparable direction voiding private supply contracts. The petition puts that distinction at the center of its reading of Kelly v. Kosuga and Kaiser Steel Corp. v. Mullins: “The panel had to identify an on-point limit on contracting itself. It did not.” (Petition at 7.)
That is Hello Farms’ argument about the limits of the federal illegality defense, and the panel plainly took a different view. It treated the promised marijuana distribution as inseparable from the lost profits the grower sought, explaining that courts must avoid enforcing illegal conduct even when a judgment would not command a new unlawful act. Under that reasoning, asking for money does not cure the problem. The petition challenges the step that gets the court there: whether those precedents permit avoidance of this contract merely because performing it would involve conduct prohibited by the CSA. (Opinion at 10–12; Petition at 6–8.)
The petition also gives our concern about the court’s refusal to weigh the equities a more specific foundation in circuit precedent. Jackson Purchase Rural Electric Cooperative Association v. Local Union 816, 646 F.2d 264, 267 (6th Cir. 1981), identifies considerations including the parties’ justified expectations, the forfeiture resulting from nonenforcement, and whether denying relief would actually advance the policy at issue. Those questions go directly to what troubled us about this outcome: what federal interest is served by relieving a licensed buyer of the consequences of breaking its bargain?
The panel questioned whether Jackson Purchase survived Kaiser Steel, but stopped short of deciding that it did not. It instead concluded that Jackson Purchase did not require balancing for this agreement to engage in conduct carrying felony penalties. The petition attacks both routes, arguing that Kaiser Steel did not displace the earlier circuit rule and that the criminal classification alone does not justify bypassing it. Its contention is that the panel created an “intra-circuit conflict” over a rule it was bound to follow. (Petition at 9–11.) That gives the request for rehearing a concrete precedential basis beyond disagreement with the result.
The comparison with other circuits is also familiar. We discussed Bartch v. Barch, 111 F.4th 1043 (10th Cir. 2024), because it examined the requested relief and left room for equitable balancing when relief would not directly order unlawful conduct. Hello Farms now relies on Bartch, along with decisions from several other circuits, to argue that the panel’s categorical approach is out of step. (Petition at 8, 11–12.)
The procedural qualification we made in the original post still matters. Bartch involved a challenge to an existing judgment under Rule 60(b)(4), and the Tenth Circuit vacated a separate enforcement order for further consideration. It did not simply approve the same kind of marijuana supply agreement on direct appeal. Its relevance is the method of analysis: the nature of the relief and the consequences of enforcement received attention that Hello Farms says this panel improperly foreclosed.
The petition’s treatment of federal marijuana policy closely tracks another point from the original piece. As it puts it, “The CSA was not Congress’s only word on marijuana.” (Petition at 14.) Congress’s repeated appropriations restrictions protecting state medical-marijuana programs are themselves federal enactments. The petition argues that a court determining federal policy must account for those choices, along with the April 2026 medical-marijuana rescheduling rule, instead of treating the CSA’s prohibitions as the complete answer. (Petition at 12–15.)
The panel’s response was that a restriction on DOJ spending does not legalize the underlying conduct, and that the later rescheduling did not retroactively validate this agreement. Those propositions explain its conclusion, but they do not exhaust the policy question presented by the civil remedy. Congress can preserve a prohibition while limiting how the federal government interferes with a state medical market. If the question is whether public policy requires a court to defeat a damages claim arising from that market, the accommodation deserves weight even if it falls short of legalization.
There is a factual point worth watching as well. Hello Farms challenges the panel’s treatment of the agreement as extending beyond medical marijuana, emphasizing that the grower held only medical licenses when the parties contracted. According to the petition, any later conversion of the buyer’s inventory to recreational use would have occurred in a separate event, “independent of Hello Farms and outside the terms of the contract.” (Petition at 15.) That argument asks the court to focus on the transaction the grower agreed to perform, rather than everything the buyer might subsequently do with the product. It would not, by itself, dispose of the panel’s alternative holding that Hello Farms would also lose if the agreement were confined to medical marijuana.
For businesses, the petition’s most consequential warning concerns removal. It describes the decision as giving a diverse counterparty a “heads I win, tails you lose” option to “remove to federal court and walk away from the bargain.” (Petition at 16.) That is substantially the concern we raised: a rule presented as vindicating federal policy can become a commercial advantage for the party that wants to escape its commitment after the economics change.
This is a challenge to the consequences of the court’s rule, rather than an assertion that diversity jurisdiction was absent. The petition likewise does not depend on the proposition that wholly intrastate marijuana activity falls outside the CSA. Its argument is directed at what federal law requires a court to do with this contract claim once the dispute is before it. Keeping that distinction clear makes the criticism stronger and directs attention to the actual choice the panel made.
The filing itself does not undo the decision, and success on the illegality issue would not necessarily settle every dispute over the $31.8 million award; the panel did not reach the defendants’ separate challenge to the damages evidence. Nor did the opinion declare every cannabis-related agreement unenforceable, since it recognized the possibility of lawful, separable obligations. The problem remains substantial within those limits: a direct supply commitment in a licensed market became an agreement the buyer could avoid through a federal defense to contractual liability.
Hello Farms has now put that problem before the court through arguments about statutory language, binding precedent, and the practical operation of federal marijuana policy. I continue to think the decision gets the balance wrong. Before federal law supplies an escape from a commercial promise that both parties voluntarily made, the court ought to explain why that result advances the policy Congress has actually adopted, including its repeated accommodation of state medical-marijuana markets. This petition gives the Sixth Circuit a well-developed opportunity to do so.
