A Michigan cannabis grower proved its case. A jury found that the buyer breached its supply agreement and awarded the grower $31.8 million in damages. But the grower still walked away without an enforceable verdict.

In Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, the U.S. Court of Appeals for the Sixth Circuit reversed the judgment because the contract required the parties to engage in conduct prohibited by the federal Controlled Substances Act (“CSA”). The court held that a federal court could not enforce the agreement, despite Michigan law authorized the underlying cannabis activity.

The September 10, 2026, decision is not binding on California state courts or federal courts in the Ninth Circuit. Nevertheless, it offers an important warning for cannabis operators nationwide: A contract that is valid under state law may still be unenforceable in federal court.

The contract and breach

Hello Farms is a licensed Michigan cannabis cultivator. In November 2020, it entered into an output contract with GR Vending MI, LLC and CURA MI, LLC, both subsidiaries of Curaleaf Holdings, Inc. GR Vending agreed to purchase all cannabis grown by Hello Farms during its 2020 and 2021 harvests, while CURA MI guaranteed GR Vending’s obligations.

When the parties signed the agreement, Hello Farms held licenses to grow medical cannabis. GR Vending held both medical and adult-use retailer licenses.

The parties expected Hello Farms’ 2020 harvest to yield between 12,000 and 15,000 pounds of cannabis. GR Vending also agreed to pay a $2.2 million deposit, subject to refund under specified circumstances.

The agreement contained detailed testing requirements. Hello Farms had to test each 50-pound batch for THC potency and contaminants such as pesticides and heavy metals. Importantly, the contract required the marijuana to satisfy state and local recreational cannabis testing requirements.

Hello Farms ultimately produced approximately 16,300 pounds in 2020. The cannabis passed the required testing, and GR Vending accepted an initial shipment of roughly 2,000 pounds.

Then market prices fell.

GR Vending refused to accept additional deliveries. Hello Farms sold the remaining 2020 harvest to another buyer at lower prices. It also expanded its cultivation operation for 2021, obtained adult-use cultivation licenses, and sold that year’s production to the same alternative buyer.

From state court to federal court

Hello Farms sued for breach of contract in Michigan state court in February 2021. The defendants were able to move the case to the U.S. District Court for the Eastern District of Michigan based on diversity jurisdiction.

That procedural move would become critical.

The defendants asserted that the agreement was illegal under federal law and therefore unenforceable. The district court rejected that defense at summary judgment, and the case proceeded to trial.

The jury found that the defendants breached the contract and awarded Hello Farms $31.8 million. The defendants renewed their request for judgment as a matter of law, but the district court again rejected the federal-illegality defense.

The district court reasoned that the agreement concerned medical cannabis and that the Rohrabacher-Farr appropriations rider reflected a federal policy of tolerating state-compliant medical cannabis activity. The defendants appealed.

Why the verdict became unenforceable

The Sixth Circuit reversed.

As the court explained, federal courts generally apply state substantive law when exercising diversity jurisdiction. But the effect of illegality under a federal statute is a question of federal law. A federal court must therefore determine whether enforcing an agreement would enforce the precise conduct that Congress made unlawful.

That principle proved fatal to Hello Farms.

In the Court’s view, the agreement required Hello Farms to possess cannabis with the intent to distribute that cannabis to GR Vending and enable GR Vending to possess it for further distribution or sale. Each step implicated conduct prohibited by the CSA unless federally authorized.

The court distinguished between a lawful economic transaction that contains an incidental illegal provision and a contract whose central performance is itself federally prohibited. Hello Farms’ agreement fell into the second category because the purchase and distribution of cannabis were the core of the bargain.

The court consequently refused to enforce the defendants’ promise to pay for that performance. It reversed the district court’s denial of judgment as a matter of law, eliminating the prior verdict and Hello Farms’ recovery.

Money damages were no solution

Hello Farms argued that it was not asking the court to order anyone to grow, deliver, or purchase cannabis. The company sought money damages for a transaction that should have occurred years earlier.

The Sixth Circuit found that distinction unpersuasive.

Hello Farms’ lost profits arose from, and were measured by, the defendants’ promise to purchase cannabis. Awarding damages would therefore give Hello Farms the economic benefit it expected from the federally prohibited transaction.

According to the court, federal illegality is not limited to cases seeking specific performance. A court also may refuse to award expectation damages when the plaintiff’s claimed recovery depends on enforcement of the unlawful bargain itself.

This is one of the decision’s most significant lessons. Simply drafting a monetary remedy does not necessarily insulate a cannabis agreement from federal illegality. If the damages represent the profits expected from cannabis cultivation or sales, a federal court may conclude that awarding those damages would indirectly enforce the prohibited performance.

The opinion does not, however, resolve every potential claim involving a cannabis business. It does not hold that federal courts must reject every dispute involving consulting services, intellectual property, real estate, equipment, loans, restitution, or other obligations connected to the industry. The closer the claim is to direct cultivation, possession, purchase, or distribution, the greater the apparent risk under the Sixth Circuit’s reasoning.

Marijuana rescheduling didn’t save the contract

The fact the federal government moved state-legal medical marijuana to Schedule III earlier this year also failed to rescue Hello Farms’ verdict.

The Sixth Circuit explained that the federal change occurred years after the parties entered the contract. Nothing in the rescheduling rule made the change retroactive or transformed the parties’ 2020 agreement into a federally lawful transaction.

The court also noted that Schedule III does not eliminate federal regulatory requirements. State-licensed medical-cannabis businesses may still need DEA registration and applicable FDA approval to cultivate, distribute, or introduce cannabis products into interstate commerce lawfully.

Rescheduling therefore does not mean that every state-licensed cannabis transaction is now federally legal. Whether a particular agreement is enforceable may still depend on when it was executed, the products and markets it covers, the parties’ registrations, and the federal rules applicable to performance.

What California operators should do

The Sixth Circuit’s opinion is not controlling precedent in California or the Ninth Circuit. California courts may analyze contract illegality and public policy differently, and the enforceability of any agreement will depend on its terms, claims, remedy, and forum.

Still, the decision relies heavily on U.S. Supreme Court authority governing the power of federal courts to enforce federally prohibited agreements. California operators should not assume the risk stops at the Sixth Circuit’s boundaries.

The takeaway

Hello Farms convinced a jury that the defendants breached their agreement. It proved substantial damages and obtained a $31.8 million verdict. None of that was enough once the federal appellate court concluded that enforcing the verdict would enforce a federally illegal bargain.

The case does not establish that every cannabis-related agreement is unenforceable. But it does reinforce a basic reality that cannabis contracts must be drafted not only for commercial performance and state regulatory compliance, but also for the court or tribunal that may eventually be asked to enforce them.

In cannabis contracting, a strong damages provision matters, but only if the chosen forum is willing and legally able to enforce the underlying bargain.

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For more updates on recent marijuana legislation, including rescheduling and the DEA rulemaking process, please check out these recent posts:

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“Kuehn did not have either taxpayer standing or standing for a matter of great public concern to challenge the constitutionality of the acts.”

By Zach Wendling, Nebraska Examiner

The Nebraska Supreme Court on Friday decided a longtime medical cannabis opponent will not have another day in court to try to overturn the state’s voter-approved medical cannabis laws, at least for now.

Chief Justice Jeffrey Funke, in a unanimous 29-page ruling, agreed with a lower court judge’s decision that former state Sen. John Kuehn of Heartwell did not have standing to challenge Nebraska’s medical cannabis laws.

Kuehn argues that such state laws, including Nebraska’s voter-enacted legalization of medical cannabis, are “preempted” by federal law under the U.S. Constitution’s supremacy clause defining marijuana as a more dangerous drug that states are precluded from regulating.

“We conclude that Kuehn did not have either taxpayer standing or standing for a matter of great public concern to challenge the constitutionality of the acts,” Funke wrote. “We therefore affirm the district court’s order dismissing Kuehn’s operative complaint without prejudice.”

“Without prejudice” means Kuehn could bring a similar case in the future if circumstances change. For instance, since June 2025, the Nebraska Legislature has appropriated more funds to the Nebraska Medical Cannabis Commission and passed new legislation around cannabis.

What is ‘standing’?

For a case to proceed, a litigant must prove they’ve suffered an “injury in fact” by the time a case is filed or later amended. Kuehn filed his case in December 2024 and last amended it June 2025. Kuehn conceded he had not yet suffered the direct injury but sought to use exceptions.

“Standing refers to whether a party had, at the commencement of the litigation, a personal stake in the outcome of the litigation that would warrant a court’s exercise of its subject matter jurisdiction and remedial powers on that party’s behalf,” Funke explained in the opinion.

Lancaster County District Judge Susan Strong dismissed Kuehn’s case on June 26, 2025. She also presided over and ruled against a preelection challenge from Kuehn, filed in September 2024.

The Supreme Court last week affirmed Strong’s ruling on the validity of Nebraska’s medical cannabis laws, also in a unanimous ruling from Funke.

Shifting federal guidance

During oral arguments in April in Kuehn’s preemption appeal, no attorneys or justices asked about shifting federal guidelines on marijuana. U.S. Attorney General Todd Blanche federally downgraded state-licensed medical cannabis to a Schedule III drug in April, down from a Schedule I drug.

Schedule I drugs, such as heroin, LSD, ecstasy and peyote, are drugs the federal government has classified as having a high likelihood of abuse and no currently accepted medical value. Schedule III drugs are defined as those with moderate to low potential for physical and psychological dependence, such as Tylenol with codeine, ketamine and testosterone.

Nebraska’s Medical Cannabis Commission is working toward implementing a state-licensed program and has licensed four cultivators. Nebraska Gov. Jim Pillen (R) and Attorney General Mike Hilgers (R) signed off on a first set of regulations for the commission this summer.

The commission is rewriting its regulations to add fees before moving to license product manufacturers or dispensaries. The Legislature authorized the commission to do so this year.

Access to legally purchase medicine in Nebraska is still months, if not at least a year, away.

Standing exceptions

Kuehn tried to use two “narrow” exceptions to the standing rule: that he should be able to sue to try to prevent an “illegal expenditure” of public funds (taxpayer standing) or because the laws constitute a “matter of great public concern” (“great public concern standing”).

“It is not enough to wait for the United States government to one day come to Nebraska and challenge these acts,” Kuehn’s attorney Eddie Greim of Missouri had told the justices. “Instead, Nebraska’s courts should be open to Nebraskans who want to hold their Nebraska state government to its constitutional limitations.”

Funke wrote that other jurisdictions might find Kuehn had taxpayer standing, such as in other states, but Funke said doing so for Nebraska would be “inconsistent with our jurisprudence.” Funke also wrote that Kuehn’s claims did not present the “rare” circumstances to justify an exception for great public concern.

Unlike in other taxpayer standing cases that try to block public spending alone, Kuehn sought to go further and declare the Nebraska medical cannabis laws unconstitutional.

Had the case proceeded and later returned to the Supreme Court, it would take five justices to declare the laws unconstitutional. For standing, Kuehn needed a simple majority, or four judges.

AG’s Office: Others could sue

Zachary Pohlman, the state deputy solicitor general defending five state officials from Kuehn’s lawsuit, had argued that at least five parties would be better suited to sue than Kuehn, such as the federal government, Hilgers, a property owner, a prospective medical cannabis user or a criminal defendant charged with illegally possessing cannabis asserting the laws as a defense.

The Supreme Court ruled that its finding whether Kuehn lacked standing was not related to whether others could sue in Kuehn’s place.

Pillen was named in the suit, as were Secretary of State Bob Evnen, Department of Health and Human Services CEO Steve Corsi, former State Treasurer Tom Briese and Tax Commissioner Jim Kamm.

Kuehn had also sued the 2024 ballot sponsors behind the voter-approved laws and current and former members of the Medical Cannabis Commission.

The Nebraska Attorney General’s Office had threatened to sue the state Medical Cannabis Commission if it issued licenses. But no such challenge materialized when the commission licensed the first cultivators in October 2025. No other state lawsuits have been filed at this time.

Hilgers’s office has joined a federal lawsuit seeking to challenge the DOJ’s rescheduling of marijuana, which President Donald Trump is calling for.

In an unsigned statement Friday, Nebraskans for Medical Marijuana said another “desperate lawsuit, designed to erase the will of Nebraska voters and destroy medical cannabis, has failed.”

“For nearly two years, people with powerful political connections and deep pockets have thrown everything they can at us,” the statement said. “Lawsuits, accusations, obstruction and delay, because they refuse to accept what 71 percent of Nebraskans overwhelmingly decided.”

The group, which led the 2024 effort to legalize and regulate medical cannabis, said no matter the money, influence or political power behind the “next attack,” it won’t erase that vote.

The next Medical Cannabis Commission meeting is Monday.

This story was first published by Nebraska Examiner.

Photo courtesy of Mike Latimer.

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Mexico’s Supreme Court has pushed the boundaries of legal adult-use cannabis a little further. This time, the issue was not cultivation, possession or transport. It was cooking.

The Supreme Court of Justice of the Nation, or SCJN, ruled that authorizations for recreational cannabis self-consumption may also cover the use of cannabis or THC in prepared or semi-prepared foods, as long as those foods are made strictly for the permit holder’s personal use.

The September 10 decision hinges on a distinction that sounds simple but carries real legal weight: making cannabis-infused food for yourself at home is not the same thing as manufacturing a regulated product for sale or distribution.

In other words, Mexico did not just legalize a commercial market for THC brownies, cookies or gummies. What the Court did recognize is that putting cannabis into certain foods can fall within the broader right to personal cannabis use that Mexican courts have been building out for more than a decade.

Cooking With Cannabis Can Count as “Preparation”

The case grew out of an authorization request filed with Mexico’s Federal Commission for the Protection against Sanitary Risks, better known as Cofepris.

The health regulator ultimately granted permission for activities tied to personal cannabis use, but it imposed several restrictions. One of them barred the permit holder from using cannabis in prepared or semi-prepared foods.

The dispute eventually made its way back to the Supreme Court.

In a 7-2 ruling, the full Court found that adding cannabis or tetrahydrocannabinol, or THC, to food intended solely for personal consumption amounts to an ordinary culinary activity. On its own, the Court said, that does not make the food a specially regulated health product.

As a result, the SCJN ordered Cofepris to issue an authorization that also allows for that kind of preparation.

That distinction matters because “preparing” was already among the activities that could be authorized for recreational self-consumption, alongside sowing, cultivating, harvesting, possessing and transporting cannabis. 

The unanswered question was how far that idea of preparation could go.

The Court has now drawn the line a little more clearly: cooking cannabis-infused food for yourself can fall within it.

No, Mexico Did Not Just Legalize Edibles

The ruling comes with very clear limits. Cannabis-infused foods made under this framework cannot be sold, distributed, given away, supplied to other people or offered to the public. The authorization applies only to the personal use of the person who holds it.

The ruling also does not erase existing health regulations for other cannabis-related products.

The Court upheld Cofepris’ restrictions on using cannabis in products subject to specific regulatory controls, including medicines, herbal remedies, medical devices, dietary supplements, cosmetics, vapes and similar products.

So the takeaway is not that anything containing cannabis is now fair game.

The ruling is much narrower: preparing cannabis-infused food at home for strictly personal consumption can be part of legally authorized recreational cannabis use.

Mexico’s Cannabis Rules Are Still Being Built in Court

The decision is the latest chapter in Mexico’s unusually court-driven cannabis policy.

In 2015, the SCJN ruled for the first time that the country’s absolute prohibition on recreational cannabis self-consumption was unconstitutional. After reaffirming that position in subsequent cases, the full Court in June 2021 invalidated, with general effect, provisions that prevented the Health Ministry from authorizing activities related to the recreational self-consumption of cannabis and THC. At the time, the Court made clear that adults could seek authorization for activities including sowing, cultivating, harvesting, preparing, possessing and transporting cannabis.

But it also set a limit that remains firmly in place five years later: those authorizations do not permit commercialization, supply or distribution.

Congress, meanwhile, has still not completed a comprehensive legal framework for adult-use cannabis.

That has left Mexico in a strange middle ground. The constitutional right to personal cannabis use has already been recognized, but the rules governing what that right actually looks like in practice are still being filled in piece by piece.

And for now, one of those pieces extends all the way to the kitchen.

Photo by Margo Amala en Unsplash

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Plaintiffs argue in the lawsuit that the result is “a single product is simultaneously legal ‘hemp’ and illegal ‘marijuana.’”

By Rebecca Rivas, Missouri Independent

A federal judge is being asked to decide whether Missouri’s new law banning intoxicating hemp products is clear enough to enforce in November or so contradictory that a constitutional challenge to it should move forward.

At the center of the dispute is the question of whether Missouri calls a product legal “hemp” in one part of state law and illegal “marijuana” in another.

The plaintiffs, led by the Missouri Hemp Trade Association, said in a filing this week that the state has created overlapping definitions, leaving businesses unsure what they can legally sell when the law goes into effect on November 12. They argue the case over House Bill 2641 deserves to be heard in court.

“Most judges would read [House Bill 2641] and go, ‘What is going on here?’” said Chuck Hatfield, attorney for the plaintiffs. “‘This seems like something we need to at least dig into and figure out.’ And that’s what our clients want is a day in court.”

The state says there’s no contradiction because the law specifically outlines which category controls: if it meets the definition of a hemp-derived cannabinoid product, it’s treated as marijuana. The state asked Judge M. Douglas Harpool of the U.S. District Court Western District of Missouri to dismiss the lawsuit earlier this month.

The state argues the case is part of a growing nationwide effort by the hemp industry to overturn similar state laws.

“The industry’s playbook is well established,” the motion to dismiss states, citing other federal cases where the challenges against other state legislation regulating intoxicating hemp have failed.

Plaintiffs hit back in their response this week, saying that Missouri’s law is different from the other states cited. These products will be considered marijuana in Missouri under the new law, they argue, and that’s where the legislation gets “unconstitutionally vague.”

The federal law distinguishing marijuana and hemp has brought intense debate both in the legislature and courts nationwide since Congress legalized hemp in 2018.

For Missouri, the lawsuit is the latest episode in a long saga to regulate intoxicating hemp products that, in previous years, has ended with lawmakers throwing their hands up in frustration.

When Congress legalized hemp in 2018, it opened a door for intoxicating products like hemp-derived THC beverages that are now found in grocery stores and bars throughout the state.

Congress closed that loophole in November by passing a federal ban that’s set to go into effect November 12. Missouri lawmakers said they intended to mirror that language by a law passed this spring.

However, plaintiffs argue in the lawsuit that the result is “a single product is simultaneously legal ‘hemp’ and illegal ‘marijuana.’”

The state argues in its motion to dismiss that it prevented this scenario because it “enacted provisions to guard against confusion.”

“In other words, to the extent that a hemp-derived cannabinoid meets the statute’s definition of ‘hemp’ and is not included in any of the statute’s exclusions from ‘hemp,’ then the product is not a ‘hemp-derived cannabinoid product’ for purposes of HB 2641’s central mandate,” according to the state’s motion. “It is that simple.”

The bill, sponsored by Republican state Rep. Dave Hinman of O’Fallon, will prohibit hemp products from containing more than 0.4 milligrams of THC per container, which is among the limits included in a provision in the federal spending bill Congress approved last year.

Even if Congress reverses course and decides to allow the sale of these products, Hinman’s bill would only permit them to be sold in Missouri’s licensed marijuana dispensaries. And if Congress chooses to delay the ban, Missouri would still ban all products, except for intoxicating beverages.

However, plaintiffs argue beverages are not specifically stated as being exempt.

The law lists types of products that would go into effect if there was a delay, which includes “any solid candy, gummy, chewable product, tablet, capsule, oil, baked good, or other solid edible.” It also includes products “that can be smokable or vapeable in the form of raw plant material, flower, or bud material and that contain any amount of tetrahydrocannabinolic acid.”

Beverages are thought to be allowed because they aren’t on the list of things that would go into effect. However, critics have said other products might be unintentionally exempt because they are not listed here, not just beverages, and the law just creates another loophole. Plaintiffs point to the carve-out clause as further reason the law is “difficult to parse.”

This list has become a bigger focus because Congress is currently considering delaying the federal ban.

Earlier this month, the U.S. Senate approved a measure to fund federal agencies until December 11, and it includes delaying the federal ban on intoxicating hemp THC products until that date.

It now goes back to the U.S. House for final approval before heading to the president’s desk.

This story was first published by Missouri Independent.

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“Verano did not want any of these terms. Had it been free to do so, it would not have accepted any of them. In fact, it would have signed no [labor peace agreement] at all.”

By Sophie Nieto-Muñoz, New Jersey Monitor

New Jersey’s mandate that cannabis companies must sign agreements with labor unions is facing another legal challenge from one of the industry’s largest operators.

Verano, which runs four ZenLeaf dispensaries in New Jersey, is suing the state’s Cannabis Regulatory Commission, arguing the state can’t force it to sign what’s called a labor peace agreement with a union. Verano’s labor peace agreements require it to remain neutral when it comes to union organizing and bar Verano from making negative statements about the union, among other things.

The state’s cannabis regulation law requires cannabis companies to maintain these agreements to obtain and keep a license to sell cannabis. Verano’s lawsuit, filed Friday in federal court in New Jersey, alleges this violates the National Labor Relations Act.

“Verano did not want any of these terms,” the complaint states. “Had it been free to do so, it would not have accepted any of them. In fact, it would have signed no [labor peace agreement] at all.”

Verano notes in the complaint that the commission has a history of enforcing the agreement condition and will dole out civil penalties when companies don’t comply. The commission fined Curaleaf, a major competitor of Verano, $610,000 in 2025 for failing to maintain its labor peace agreement.

Verano said if it loses its license, it will be forced out of business, forced to fire its workers, and “sacrifice its accumulated goodwill in the local market.”

The company holds licenses for dispensaries in Elizabeth, Lawrence Township, Neptune Township and Mount Holly, plus a cultivation and processing facility in Branchburg, with a total staff of about 300. The Neptune license was up for renewal August 1, with Mount Holly’s renewal coming up in November.

Verano’s labor peace agreement is with Local 360 of the United Food and Commercial Workers Union.

Verano is asking a judge to declare that the labor peace mandate can’t be used as grounds to deny, suspend, revoke or refuse renewal of its licenses, and that its agreements with Local 360 are voidable, which would allow the company to walk away from the union relationship.

Spokespeople for the union, which is named as a defendant in Verano’s lawsuit, and for the Cannabis Regulatory Commission did not respond to requests for comment. The commission is scheduled to meet for a public meeting on Thursday.

Verano’s lawsuit relies heavily on a recent decision in Curaleaf’s legal challenge to labor peace agreements. In that case, a federal judge in May denied the Cannabis Regulatory Commission’s move to dismiss Curaleaf’s lawsuit and said labor peace agreements are preempted by federal law.

Verano argued its agreements with the union should now be considered void, claiming that both sides signed them under the belief that it was required under law, that Verano only signed under “illegitimate coercion,” and that the agreement’s entire purpose—regulatory compliance—no longer exists because of the ruling in the Curaleaf case.

New Jersey started requiring these agreements in 2018, when the state Department of Health began scoring cannabis license applications and awarded 30 points to companies that signed one, which effectively made the agreement a necessity. It was later written into the state’s cannabis law, which led to recreational dispensaries opening their doors in April 2022.

This story was first published by New Jersey Monitor.

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“We just want a fair shot. We’re not asking for anything special, no special privileges, but what they promised from the very beginning.”

By Hannah Meisel, Capitol News Illinois

Nearly seven years after Illinois lawmakers approved recreational cannabis legalization, applicants who lost out on coveted business licenses are still battling the state in court, alleging the law’s rollout undermined its purported equity goals.

At the time of its passage in 2019, supporters of Illinois’s landmark law touted it as the most equity-centric legalized cannabis program in the nation. But one of the centerpieces of that legislation—setting aside the majority of cannabis business licenses for “social equity” applicants disproportionately affected by the War on Drugs—proved more complicated than the law’s authors had imagined, setting off years of litigation over the process.

The final lawsuit of dozens filed following the first cannabis licensing lottery in 2020 finally got its day in court last week, marking the conclusion of a yearslong legal saga testing the state’s legalization policy. But it’s also the last chance for the plaintiff, Well-Being Holistic Group, to have an opportunity for a dispensary license after all four of its applications lost in three lotteries.

“We just want a fair shot,” the Rev. Otis Davis, said after a hearing in the case. “We’re not asking for anything special, no special privileges, but what they promised from the very beginning… So we just saying, ‘Hey, that the system is broken, then they should redo it, and they should give everybody a chance.’”

Davis preaches at Repairers of the Breach Ministries in Chicago’s Back of the Yards neighborhood and unsuccessfully ran for Chicago City Council in 2019. He was part of the team that applied for dispensary licenses as Well-Being Holistic Group in 2020. Chris Harris, an attorney who’d represented Davis, teamed up with his client along with Harris’ friend and business partner David Roberts to submit the applications.

Harris was blunt in his assessment of Davis’s value to the team: “Otis being a veteran, Otis being a practicing minister on the South Side of Chicago coming from a disproportionately impacted area—we had what we thought was a perfect team, and a team that was designed to win this type of license.”

In fact, Well-Being Holistic Group’s applications received perfect scores, but still didn’t win a license. While most lawsuits filed against the state after the lottery process were from applicants who disputed their scores for a chance to be included in the lottery, Well-Being’s case argues a different legal theory, which attorney Chris Carmichael of Henderson Parks said is the “most difficult path” of all the lawsuits.

Plaintiff alleges lotteries were rigged

Well-Being argues that the Illinois Department of Financial and Professional Regulation, which operated the lotteries, improperly allowed roughly 450 ineligible entries into a lottery of 901 applicants for dispensary licenses in the Chicago region. That, Well-Being argues, nearly doubled the size of the pool and reduced others’ chances of winning.

Well-Being alleges the entries should have been flagged as ineligible because corporate dispensaries that already had a footprint in Illinois’s medical cannabis market had their fingerprints on applications for social equity dispensary licenses.

In one case, Carmichael said a company paid for roughly $500,000 in application fees—something IDFPR and the consultants hired to vet applicants and conduct the lotteries should have caught, as the “remitter” line on those cashier’s checks contained the name of the company.

IDFPR maintains it did its due diligence by checking out the individuals named as principal officers on the license applications, which the agency argues would have caught any attempts to flout application limits or hide true ownership of the entity behind an application.

But Well-Being argues vetting only individuals missed the forest for the trees, causing IDFPR to overlook dozens of applications having the same corporate sponsorship.

Alex Moe, a lawyer from the Illinois Attorney General’s office, told Cook County Judge Patrick Stanton that Well-Being was “missing that consultants were expected” to take part in the application process. There were no rules against those consultants paying for application fees either, he said, unless consultants had undisclosed financial interest in the entity applying for licenses.

Further, Moe said Well-Being’s theory of mathematical unfairness in the lotteries is fundamentally incorrect.

“Even if Well-Being is correct and half the applicants should not have been in there, it doesn’t change the outcome,” he said.

By following the “paper trail” created by the lottery, Moe said IDFPR recalculated what would have happened if the applications Well-Being allege should’ve been marked ineligible weren’t in the pool. Well-Being would have placed 126th out of 450, he said.

“That’s something we know with mathematical certainty—that Well-Being would not have received a winning drawing,” Moe said.

Corrective lottery?

But Carmichael pointed out that since the state has social equity cannabis dispensary licenses going unused, “the only possible meaningful thing to do is to run a corrective lottery.”

The state already ran corrective lotteries after initial litigation held up the license awarding process for a year. The first dispensaries owned by social equity license holders didn’t open until November 2022—nearly three years after the application process opened. As of January, only 64 percent of licensed social equity dispensaries were operational, according to an analysis by The Chicago Reporter.

Stanton, who pointed out multiple times during the hearing that IDFPR had wide latitude over interpreting state statute, said he understood Well-Being’s claims but seemed skeptical of its arguments that a court should step in and tell a state agency how to do its job.

“It sounds to me like…there was some vetting done before the lottery. Maybe not the level of vetting you think should’ve been done,” he told Carmichael. “You’re saying they didn’t do enough. And I feel like, ‘Okay, that’s sort of the decision of the department.’”

The judge said he would need more proof that IDFPR “didn’t follow statute” in order for judicial review to be warranted.

“They did something,” Stanton said of IDFPR. “Perhaps not enough. Applying the standards they did, it seems to me they caught what they should’ve caught.”

The judge is set to rule at a May 21 hearing.

This article first appeared on Capitol News Illinois and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.

Photo elements courtesy of rawpixel and Philip Steffan.

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