Cannabis Companies Face Increasing Consumer Protection Scrutiny

Cannabis Companies Face Increasing Consumer Protection Scrutiny

Dec 09, 2019

Client Alert

Brownstein Client Alert, December 9, 2019

Even as the U.S. Department of Agriculture released its interim rule for the domestic production of hemp, the last few months should stand as a strong reminder to the industry: in addition to complying with new rules and regulations imposed by various states and agencies, cannabis companies need to keep existing consumer protection laws in mind as they market their products. State and federal consumer protection authorities, as well as class action lawyers, have cannabis companies in their sights.
 

Government Enforcement

Companies need to be mindful that, in addition to the Federal Drug Administration (FDA), the Federal Trade Commission (FTC) and state attorneys general can take action against alleged false and misleading marketing of CBD products under long-standing consumer protection laws. In September of this year, the FTC sent warning letters to three unidentified companies that sell oils, tinctures, capsules, gummies and creams containing CBD, advising that it is illegal to advertise that a product can prevent, cure or treat human disease without competent and reliable scientific evidence to support those claims. Such practices would also violate state consumer protection laws, many of which mirror the FTC Act and all of which prohibit deceptive or misleading advertising. State attorneys general have aggressively pursued actions against dietary supplements in the past, best demonstrated by the New York attorney general’s 2015 sweeping action against four major retailers for selling mislabeled store-branded dietary supplements. At a National Association of Attorneys General Consumer Protection conference last month, representatives from both the Colorado and Iowa attorney general offices confirmed that they would approach consumer protection regulation of CBD products the same way they would investigate any other dietary supplement.


Other Consumer Protection Actions

Companies around the country long have been subject to lawsuits brought by plaintiffs who bring various types of false advertising claims. These lawsuits include everything from packages not being as filled with product as they appear (slack-fill) to products being labeled “natural” when they contain chemicals and products claiming to achieve results when they scientifically cannot. As the cannabis industry continues to expand and manufacture new products, CBD’s lack of clear legality presents unique liability exposure being exploited by the plaintiffs’ bar. Just last month, a plaintiff filed a class action lawsuit against Just Brands USA, Inc. in which, despite labeling claims that there was “NO THC” in the products, the products did in fact contain THC. (Darrow v. Just Brands USA, Inc. et al, Case No. 1:19-cv-07079, N.D. Ill.) In September 2019, a plaintiff filed a class-action lawsuit against PotNetwork, Diamond CBD and First Capital Venture for misrepresenting the amount of CBD in products because they contain less CBD than represented on the labels. (Potter et al v. PotNetwork Holdings, Inc., Diamond CBD, Inc., and First Capital Venture Co., Case No. 19-cv-24017, S. D. FL.) In another case, a plaintiff, who was a professional over-the-road hazmat commercial truck driver, tested positive for THC in an employment-related drug screen after the plaintiff used CBD hemp oil drops. (Horn v. Medical Marijuana, Inc., Case No. 15-cv-701-FPG, W.D.N.Y.) A recent rash of class actions allege that consumers would not have purchased CBD products if they had known they were not compliant with FDA guidelines. See, e.g., Colette et al. v. CV Sciences, Inc., Case No. 19-cv-10227, C. D. CA. These cases were filed in the wake of the FDA last month sending warning letters to 15 CBD companies and issuing a new consumer alert on CBD stating that it still cannot designate the chemical as “generally recognized as safe” for consumption.

The cannabis industry has joined the ranks of other consumer protection lawsuits as well. Three CBD companies were sued for not having a website that is usable by screen reading software. These cases are brought under the Americans with Disabilities Act and assert that websites are places of public accommodation and therefore need to be accessible to people with disabilities. There are an extensive number of articles on website accessibility, and this line of cases is one of the fastest-growing types of cases being filed in the United States. The fact that these three targets were cannabis-related was likely not relevant to their being targeted other than the fact that they offer a consumer product.

These are just some of the recent cases that the industry needs to be mindful of as more private actions are being filed on a regular basis. Companies manufacturing products with cannabis or cannabis derivatives need to be particularly conscious of variances that appear in hemp and maintain frequent testing records to support their claims. As other product companies have learned over the years, having strong and accurate test data to support your claims goes a long way in defending against false advertising claims.


Conclusion

While cannabis is an emerging industry and facing product-specfic regulation, it is critical for companies operating in this space to have an understanding of general consumer protection law and be able to evaluate representation claims. The recent mislabeling lawsuits show that manufacturers and companies face significant liability from making unsubstantiated health or quality claims, and even from not disclosing that CBD is not yet recognized as safe by the FDA. Finally, the fact that CBD companies are becoming targets for the plaintiffs’ ADA website bar underscores that cannabis companies are already subject to substantial regulation and litigation risk, similar to any other consumer product company.

 

This document is intended to provide you with general information regarding consumer protection actions against cannabis companies. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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