Are 'Legal' Marijuana Contracts 'Illegal'?
UC Davis Business Law Journal, v. 16, no. 1, 2015
Posted: 29 Aug 2015 Last revised: 2 Oct 2017
Date Written: August 27, 2015
America is currently in the midst of a “legal” marijuana business boom. In states which have legalized marijuana thousands of businesses have been created and are being openly operated despite the continued prohibition on their main product by the federal Controlled Substances Abuse Act. As a regular part of their business, these companies enter into contracts which violate the CSA, for example, every time they sell their main product. These businesses, and their stakeholders, rely upon the enforceability of these contracts in order to regulate their relationships. However, under the “illegality” or public policy defense to the enforcement of contracts these contracts are arguably all void and unenforceable. Under the traditional understanding of this defense not only will an illegal contract not be enforced but any consideration paid will not even be returned. This defense is grounded in the public policy against encouraging illegal behavior and is a product of state law. Should courts apply it to the marijuana industry which has been legalized also under state law when it clearly is not against the public policy of states which have legalized marijuana to allow for the sale of marijuana? This article explores the effects of the conflict between federal and state marijuana laws on these businesses’ ability to enter into legally enforceable contracts. This article argues that marijuana contracts do not in fact violate public policy and therefore should be enforced despite their illegality. Nevertheless, courts should exercise restraint in enforcing these agreements, particularly in applying equitable remedies such as specific performance, so as to avoid forcing individuals to violate federal law.
Keywords: marijuana, contracts, legalization of marijuana, marijuana business
JEL Classification: K12, K2
Suggested Citation: Suggested Citation