James LaRock

Colorado and Washington have implemented systems to regulate and sell marijuana.[1] Other states are following suit.[2] But the Controlled Substances Act (CSA) lingers over businesses attempting to buy and sell marijuana in those states. One scholar has referred to the various provisions of that Act as the heads of a hydra:[3] solve one problem, and two more sprout up. This Note focuses on one problem that the Act causes in particular—it disrupts contract formation. This Note argues that the CSA may preempt any state law which authorizes conduct that the CSA prohibits. It argues that the Restatement’s approach to contracts against public policy suggests that courts should enforce marijuana-related contracts. Finally, it argues that relatively little federal action would be necessary to solve this problem; Congress would not have to repeal the CSA or remove marijuana from the list of scheduled substances.

Under traditional rules of contract formation, any contract to perform an illegal act or that has an illegal purpose is not enforceable.[4] Following this rule, state courts in Arizona and Colorado have refused to enforce marijuana-related contracts.[5] While the modern scholarly view of contracts that violate public policy calls for balancing the policies for and against enforcing a contract,[6] only one state has actually embraced and applied this view—Illinois.[7]

There are several ways that businesses and states can attempt to solve this problem. However, without federal action, none of them will be satisfactory. Parties can attempt to draft better contracts[8] or arbitrate their disputes, but any attempt to contract around the problem will fail because the problem is with the contracts themselves. States can pass laws demanding that courts enforce marijuana-related contracts, but the CSA probably preempts those laws because they present an obstacle to the CSA as it stands today. Courts may attempt to adopt the Restatement approach, but common-law policymaking is slow and would be inconsistent across jurisdictions.

This is not to say that all hope is lost. The CSA speaks in unequivocal terms,[9] but the Department of Justice (DOJ) doesn’t pursue every violation. Rather, the DOJ has certain enforcement priorities with regard to marijuana.[10] As long as a state’s laws serve to accomplish Congress’ purposes, the DOJ will not challenge the structure of the regulatory scheme itself.[11]

Those priorities provide a framework for a cooperative federalism approach, articulated by Sam Kamin and Erwin Chemerinsky over the last few years.[12] Their suggestion—essentially to codify the DOJ’s enforcement priorities—would solve this problem for two reasons. First, it would eliminate any preemption problem. Congress would have to at least implicitly recognize that state laws seeking the same ends as the CSA while using different means do not present an obstacle to achieving Congress’ goals. Second, it would be an implicit policy statement in favor of enforcing contracts. Such a law would recognize that a regulated market for marijuana can achieve Congress’ goals, and markets depend on enforceable contracts.

As it operates today, the traditional rule against enforcing contracts that violate any law creates the injustices that it is supposed to prevent. Ostensibly lawful businesses, employees, and others in Colorado and other states cannot always count on people keeping their promises. Bad actors try to use the defense as a shield,[13] and courts ignore huge forfeitures.[14] Until Congress acts to fix this problem, basic principles  of contract law will be frustrated.

Questions and inquiries regarding this Note may be forwarded to the author at LawReview@vermontlaw.edu.