The U.S. Court of Appeals for the Third Circuit vacated a lower court's summary judgment ruling in a cannabis industry business dispute, citing concerns that the underlying contract may involve conduct violating federal law. The appellate court issued its non-precedential opinion Jan. 22 in *Apical Biotek LLC v. Maitri Holdings LLC*, ordering the case remanded to the U.S. District Court for the Western District of Pennsylvania for further proceedings.
The case centers on a business relationship between cannabis consultant Justin Givens, who is the sole member of Apical Biotek LLC, and four related cannabis companies: Maitri Holdings, Maitri Genetics, Maitri Management, and Maitri Medicinals. The defendants operate a tissue culture laboratory and medical marijuana dispensaries in Pennsylvania.
According to court documents, Givens and the Maitri entities reached what they described as "an understanding on a financial framework" to compensate the plaintiffs for consulting services. The consulting arrangement specifically included guidance on operating a "tissue culture lab," which is used in cannabis cultivation and propagation.
The dispute arose when the business relationship soured, leading Apical Biotek and Givens to file suit in federal court alleging breach of contract and unjust enrichment. The plaintiffs sought compensation for consulting services they claimed to have provided under their agreement with the Maitri companies.
District Judge Marilyn J. Horan granted summary judgment in favor of the defendants on both claims, effectively dismissing the case at the trial court level. Summary judgment is typically granted when there are no genuine disputes of material fact and one party is entitled to judgment as a matter of law.
However, the Third Circuit panel, consisting of Circuit Judges Shwartz, Matey, and Ambro, found that the district court failed to adequately address a critical legal issue: whether the consulting contract involves conduct that violates federal marijuana laws. Circuit Judge Shwartz wrote the opinion for the three-judge panel.
The federal legal landscape surrounding cannabis remains complex, as marijuana remains classified as a controlled substance under federal law despite legalization efforts at the state level. Pennsylvania has legalized medical marijuana, allowing for regulated cultivation, processing, and distribution through licensed dispensaries.
This legal tension creates unique challenges for courts when adjudicating cannabis-related business disputes. Federal courts must grapple with whether they can enforce contracts involving activities that, while legal under state law, may still violate federal controlled substances statutes.
The Third Circuit's decision reflects this ongoing judicial struggle with cannabis-related litigation. Rather than ruling definitively on the merits of the breach of contract and unjust enrichment claims, the appellate court determined that the lower court must first resolve the threshold question of federal law compliance.
"Because the contract at issue may involve conduct that violates federal law, we will vacate and remand to the District Court to determine whether the contract involves such conduct, and if so, whether dismissal is warranted," the court wrote in its opinion.
The remand instruction requires the district court to conduct a two-part analysis. First, Judge Horan must determine whether the consulting agreement involves conduct that violates federal marijuana prohibition laws. If the court finds such violations exist, it must then decide whether those violations warrant dismissing the case entirely.
This approach aligns with established legal doctrine that courts generally will not enforce contracts for illegal activities. However, the application of this principle to state-legal cannabis businesses operating under federal prohibition creates novel legal questions that courts continue to wrestle with nationwide.
The case highlights the ongoing challenges facing the rapidly expanding legal cannabis industry, particularly in states like Pennsylvania where medical marijuana operations must navigate the intersection of state licensing regimes and federal prohibition. Business disputes in this sector often raise complex legal questions about contract enforceability and federal preemption.
For the cannabis industry, the Third Circuit's decision underscores the continued legal uncertainty surrounding business agreements in the sector. Companies operating in state-legal cannabis markets face the persistent risk that federal law considerations could impact the enforceability of their contracts and business relationships.
The case will now return to the Western District of Pennsylvania, where Judge Horan must conduct the federal law analysis ordered by the appellate court. Depending on her findings, the breach of contract and unjust enrichment claims may proceed to trial or face dismissal based on federal law concerns.
The Third Circuit designated its ruling as non-precedential, meaning it does not establish binding precedent for future cases. However, the decision provides insight into how federal appellate courts are approaching cannabis-related contract disputes as the industry continues to expand across states with varying legalization frameworks.