Warning for Cannabis Businesses: Your Contracts May Not Be Enforceable
Why Your Contracts Might Be Unenforceable
The Federal-State Legal Conflict
Despite many states legalizing cannabis and growing public acceptance, marijuana remains illegal at the federal level as a Schedule I controlled substance. This legal contradiction creates serious problems for cannabis businesses, especially when it comes to enforcing contracts.
Basic contract law establishes that agreements for illegal activities cannot be enforced by courts. This creates a major problem for cannabis businesses:
Your business may be completely legal in your state
But your business activities violate federal law
Federal courts may refuse to enforce your contracts because of this
Recent court cases show this isn't just a theoretical problem:
In February 2025, a federal court in Ohio dismissed a breach of contract case involving a Michigan cannabis business because the contract involved federally illegal activities.
In another case, Curaleaf is trying to overturn a $31.8 million judgment against them by arguing their cannabis contract was unenforceable under federal law.
How to Protect Your Cannabis Business
1. Always Get Written Contracts
Verbal agreements are never sufficient. Make sure all your business arrangements are documented in writing with clear terms.
2. Stay Out of Federal Court
Your contracts should specifically state that any disputes must be resolved in state court—preferably in the state where your cannabis license was issued. Federal courts generally respect these forum-selection clauses.
3. Consider How You Would Enforce the Contract
When creating contracts, always think about what would happen if the other party doesn't fulfill their obligations:
Can the court where disputes will be heard effectively enforce remedies?
Would cannabis regulators recognize court-ordered remedies from another state?
How practical is enforcement across state lines for cannabis businesses?
The best approach is usually to specify that disputes must be resolved in the state courts where your cannabis business is licensed.
Protect Your Business Before Problems Arise
The growing acceptance of cannabis doesn't eliminate the legal complications created by the conflict between state and federal law. Don't wait until you're facing a contract dispute to address these issues.
Take these simple steps now to protect your business:
Get everything in writing
Keep disputes in state court
Think about enforcement before signing any agreement
These precautions could save your business significant money and legal headaches in the future.