In this analysis published by Highly Capitalized News, Shay Aaron Gilmore examines what a Sixth Circuit decision erasing a $31.8 million cannabis jury verdict means for California harvest and supply contracts. In Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, a licensed Michigan grower contracted to sell its harvest to a Curaleaf subsidiary, grew product that passed testing, and saw the buyer refuse further deliveries when prices fell. A jury awarded the grower $31.8 million. On September 10, 2026, the Sixth Circuit reversed, holding that federal courts cannot enforce contract claims founded on an agreement to purchase marijuana illegally.
Gilmore explains why California operators should read the decision as a warning. The 2026 outdoor harvest is arriving in a soft market, and when prices fall, some buyers look for a way out of their purchase commitments. The illegality defense has its best chance of success in federal court. He also explains why federal rescheduling does not rescue an adult-use contract: the April final rule moves only FDA-approved drug products and state-licensed medical marijuana to Schedule III, and contracts between adult-use licensees fall outside the rule.
The article then turns to California’s answer. Civil Code § 1550.5(b) makes commercial cannabis activity that complies with California law a lawful object of a contract, notwithstanding federal law. In superior court, that gives an unpaid seller a statutory response to the illegality defense. Gilmore explains the limits of that protection, including a now-depublished Court of Appeal opinion that questioned the statute under the Supremacy Clause, and the rule that in federal court the effect of federal illegality on a contract is decided under federal law. He discusses how the Ninth Circuit’s approach in Bassidji v. Goe might help a seller, and why the Sixth Circuit rejected that kind of balancing.
A central point is removal. A buyer can move a case from state court to federal court on diversity grounds. Because a limited liability company takes the citizenship of every one of its members, a California licensee owned through out-of-state members may be able to remove a case that looks entirely local.
The article closes with a practical checklist for harvest and supply contracts this season: an exclusive California superior-court forum with an express removal waiver; arbitration under the California Arbitration Act, with confirmation reserved to superior court; California choice of law that names § 1550.5; payment security that does not depend on a lawsuit; the same forum and arbitration terms in every guaranty, consignment agreement and side letter; and a review of contracts already signed.
The piece reflects Gilmore’s work drafting and reviewing cannabis supply, output, consignment and distribution agreements, and representing licensees in payment and breach disputes in California courts and arbitration.