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B. State Courts.
It should be no surprise that state courts in states that have legalized recreational cannabis are far more friendly to cannabis-related contracts than federal courts. Initially, much of this acceptance comes from statutes expressly making cannabis-related contracts enforceable by rejecting the illegal contract defense. For example, in Nevada, the voters have rejected the illegal contract defense through statute by making the manufacturing and distribution of cannabis a public policy of the state:
It is the public policy of the People of the State of Nevada that contracts related to the operation of marijuana establishments under this chapter should be enforceable, and no contract entered into by a licensee, its employees, or its agents as permitted pursuant to a valid license issued by the Department, or by those who allow property to be used by a licensee, its employees, or its agents as permitted pursuant to a valid license issued by the Department, shall be deemed unenforceable on the basis that the actions or conduct permitted pursuant to the license are prohibited by federal law.18
California has a similar statute making “commercial activity relating to medicinal cannabis or adult-use cannabis conducted in compliance with California law” a “lawful object of a contract.”19
Accordingly, state courts have been far more apt to outright reject the illegal contract defense than their federal counterparts. As one example, an Arizona appellate court in Green Cross Medical, Inc. v. Gally reversed the trial court’s decision that a commercial lease for the operation of a medical marijuana dispensary was illegal and therefore subject to the illegal contract defense. 20 In doing so, the Gally court quoted liberally from Green Earth and Mann in rejecting the defense. The Gally court also explained that the Arizona Medical Marijuana Act expressly provided such contracts were for legal activity and that the dispensary was properly licensed with the Arizona Department of Health Services.21 Resolving the issue of purported illegality at the federal level, the Gally court explained that the illegal contract defense is “flexible” and that courts “must look to the legislative intent” of the underlying law.22 Because the federal government had shown a “lack of interest in prosecuting individuals” who complied with state law legalizing cannabis use, the Gally court balanced the federal and state interests and concluded the state interests prevailed.23 Nevada courts have reached similar conclusions.24
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