As more states have legalized cannabis for recreational use, courts have increasingly been asked to adjudicate disputes arising from commercial cannabis contracts. Many of these contracts resemble ordinary commercial agreements negotiated and executed by sophisticated commercial parties, with one notable exception—they relate in one way or another to the growth, sale or distribution of marijuana, which remains a Schedule 1 substance that is illegal under the federal Controlled Substances Act. As a result, litigants have asserted various permutations of the illegality defense to the enforcement of what might otherwise be valid commercial contracts. For New York businesses, investors and practitioners, this begs the question: How will courts apply New York’s own illegality doctrine to commercial cannabis disputes?
Recent efforts to legalize recreational cannabis in New York were unsuccessful; the issue has been deferred by the New York state legislature until 2020. Consequently, New York state courts have yet to address the impact of federal illegality on the enforcement of contracts. However, there is a deep body of New York case law that demonstrates the broader outlines of New York’s illegality doctrine, and offers some insights into how New York courts might ultimately deal with illegality objections.
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