As popular as cannabis has become as a recreational and medicinal agent, that popularity and the nascent nature of the cannabis industry have created a difficult scenario whereby manufacturers and sellers of these products are being sued with increasing frequency. Without a doubt, the legal and regulatory landscape for cannabis is complex.
Several dozen states have legalized marijuana for medicinal and/or recreational purposes, but marijuana remains a Schedule I drug at the federal level. The Agricultural Improvement Act of 2018 (more commonly known as the 2018 Farm Bill) removed hemp (defined as cannabis products containing less than 0.3% THC on a dry weight basis) from the Controlled Substances Act.
This means that CBD products derived from hemp are no longer controlled narcotics. However, the same is not true for CBD products derived from marijuana (defined as cannabis containing more than 0.3% THC on a dry weight basis).
Added to this situation, the U.S. Food and Drug Administration has refused to deem even CBD-based products safe and has refused to allow CBD products to be labeled with health benefit claims or for CBD to be added as an ingredient to foods. Nevertheless, and likely because the market for cannabis products is estimated at $20 billion, there has been a dramatic increase in the number and type of cannabis-derived products on the U.S. market.
And, given the legal landscape and widespread consumer success of such products, it is not surprising that they have become a major focus of the class action plaintiffs bar, as evidenced by recent lawsuits filed almost daily against companies manufacturing and selling cannabis products, including CBD products.
These lawsuits assert an array of legal and factual theories — including false or illegal labeling claims, improper marketing claims, product defects, tainted products, unfair business practices and bodily injuries — and the lawsuits claim the need for class-based relief and millions of dollars in damages.
In California, Arizona and elsewhere, class action lawyers, purportedly on behalf of consumers, seek to take advantage of plaintiff-friendly laws that require radical transparency in terms of product disclosures, advertising and promotional claims in those states. Because most of these suits claim the companies are guilty of unfair competition and false advertising, this post identifies the issues most frequently raised in such cases, with a focus on how these cases and claims are targeting CBD products.
There are five primary issues raised in most CBD class actions:
- Labeling/Marketing; and
Of course, every lawsuit requires special consideration of the companies and products at issue, as different or additional defenses may come into play. However, because most of the current suits have one or more of these five issues in common, suppliers and manufacturers of CBD products will benefit greatly from a better understanding of the issues and the defenses that can be raised in these types of lawsuits.
In the U.S., there is only one federally certified, pharmaceutical-grade grower and processor of cannabis (University of Mississippi), so all of the other manufacturers and suppliers of cannabis and cannabis-derived products are subject to attack (often unfairly) for failing to meet appropriate quality and supply standards.
Of course, some states that have legalized marijuana for medicinal and/or recreational use have standards or guidelines of their own, but none of those standards/guidelines have been nationally or internationally accepted or peer-reviewed. This means that companies producing and/or selling such products are, to a certain extent, on their own in terms of deciding what processes and practices to employ. And, the absence of published and generally accepted standards and processes creates vulnerabilities to lawsuits.
In addition, according to some estimates, the majority of cannabis oil imported into the U.S. is grown and processed in emerging markets where good manufacturing practices and cannabis regulations are not nearly as developed as in the U.S. Therefore, imported CBD goods could potentially be tainted with lead, arsenic, pesticides and other contaminants, creating additional liability risks.
In short, the current circumstances present a conundrum for companies in the CBD industry because there is no safe harbor. One way companies can reduce their risk of liability is to borrow from accepted standards and practices in highly regulated industries like the pharmaceutical and food industries, until specific standards and practices for cannabis-derived products are established by the FDA, scientific groups and/or trade associations.
To that end, companies should prepare and follow a set of written manufacture, supply and testing standard operating procedures and good manufacturing practices. It is not enough for companies to simply trust their upstream manufacturers and suppliers, and to assume that everyone is operating with high standards like their own.
Instead, companies need to think critically about how they will defend their manufacture and supply processes and practices in front of a judge or a jury. Establishing the bona fides of their own standard operating procedures and good manufacturing practices will position these companies to defend against potential class action lawsuits that threaten their thriving but still new businesses.
If companies have robust, written standard operating procedures and good manufacturing practices that they are actually following, they will be well-positioned when facing claims of poor supply or lack of transparency.
In light of these manufacture and supply issues, it is not surprising that some of the biggest challenges in the CBD industry have to do with purity and contamination.
There are some pretty striking examples of purity and contamination problems in the cannabis industry, and they make companies an easy target for class actions. By way of example, in late August 2019 the Michigan Marijuana Regulatory Agency, or MMRA, issued recalls for four medicinal marijuana products that failed certain testing standards after the MMRA found potentially dangerous levels of chemicals in the products.
The MMRA went a step further and issued a warning to product users that the products at issue could cause coughing, wheezing, pulmonary dysfunction, abnormal heart rate and blood vessel damage.
Elsewhere, testing labs have found wide variability in the amount of active metabolites in CBD products, measuring anywhere from 0% (nondetect) to 700% of the advertised amount. There have also been reports of CBD products contaminated with THC (well above the 0.3% of THC that qualifies the product as a hemp product), and other tests have found the presence of heavy metals, pesticides and dangerous impurities and contaminants.
It makes sense that the lack of national, international or generally accepted standard operating procedures and good manufacturing practices (as described above) may be
contributing to these issues, but, unfortunately, the lack of such standards is not a defense to a lawsuit based on impurity or contamination.
To prepare for such suits, companies manufacturing or supplying CBD products must put in place testing protocols that will enable them to fairly and accurately test for and label the quantity of THC and/or CBD in their products, and confirm that their products have safe levels of heavy metals, pesticides and other impurities/contaminants.
It is simply too easy for a plaintiffs attorney to run a rudimentary test on a product, find impurities and/or contaminants, and then take advantage of consumer-friendly state laws as a basis for a class action, or an action on behalf of the public under a statute like California’s Proposition 65 (which allows private parties to bring actions on behalf of the general public), cases that can seriously impact your business and your brand.
Because marijuana remains a federal Schedule I drug and there are no long-term population-based studies establishing the safety and efficacy of marijuana (or CBD), there is no accepted, peer-reviewed dosing regimen/risk profile for such products. This is important because it is widely believed in the scientific community that, as with prescription drugs, children are more susceptible than adults to drug-related effects (positive and negative).
Scientists also believe that, as with other drugs, there are subpopulations of CBD users (beyond children) who are uniquely susceptible to its effects. Finally, it has been well demonstrated that the form of any cannabis-derived product, including CBD, (e-liquid, tablet, cream, edible) and the route of exposure (inhalation, skin absorption, consumption) significantly impacts the dose delivered and the user’s rate of metabolism.
It is also understood that — even when controlling for age, sex, body weight and various other factors — there is a high degree of variability in terms of how various individuals respond to the same dose of CBD.
All of these issues can potentially come into play as companies describe, market, label and promote their products, especially if they are making health benefit claims with respect to their products. Indeed, the vast majority of the current class actions center around labeling, marketing and promotional claims.
Because of marijuana’s federal scheduling and the fact that the FDA has evaluated and approved one CBD-derived product, cannabidiol (trade name, Epidiolex), for the treatment of seizures in children, all cannabis-derived chemicals/products continue to be treated, and regulated, as drugs by the FDA.
Thus, any product containing cannabis or cannabis derived materials (including CBD) cannot presently be marketed as a drug, dietary supplement or food product without FDA approval. Equally as importantly, companies cannot market such products with health benefit claims (i.e., any claim that the product can affect the structure or function of the human body, including claims that it prevents or treats a disease, condition or disorder).
From FDA’s perspective, there is simply too little known about the health effects of cannabis, including CBD, to be able to make such claims. In a May 2019 public hearing concerning the status of FDA’s views on, and regulation of, CBD products, Acting FDA Commissioner Ned Sharpless stated, “[w]hile we’ve seen an explosion of interest in products containing CBD, there is still much that we don’t know.”
Sharpless went on to describe areas of concern/uncertainty as including: proper dosing; cumulative dosing; effects on children; and effects of different routes of administration, among others.
Unfortunately, this is not the only challenge companies face in the labeling and warning area. The plaintiffs bar’s view on manufacture and supply is that companies and products must demonstrate radical transparency and the public has a right to know essentially everything that relates to safety and efficacy of CBD products.
Yet, meeting this high standard is difficult in an industry where the science is not fully developed and the regulatory regime is still playing catch-up. In the nascent industry of CBD products, virtually anything said about the properties and health effects of the products is subject to criticism.
In this context, companies that claim their CBD products are natural or that make expansive health benefit claims (e.g., “Slows the progression of dementia and Alzheimers”; Effective treatment for depression”) place themselves at risk of federal and state regulatory enforcement action and exposure to consumer class action suits on grounds of illegal labeling statements, unfair competition and/or false advertising.
Of course, there are defenses to such claims, especially where the advertising or promotional claims are more general in nature (e.g., “GanjaTime will leave you feeling better and more relaxed”) or where the damages claims are speculative or subject to significant individual variability.
In the current environment, it is challenging for companies to make clear and detailed statements about the safety and efficacy of their CBD products. Most have not been systematically studied over the long term, and there is no private or public registry or database that gathers and reports adverse events and drug or substance interactions for CBD products.
For these reasons and others, the FDA has taken a cautious approach and has not deemed CBD to be generally recognized as safe, though the World Health Organization has publicly stated that CBD is safe.
The FDA’s experience evaluating the prescription medication Epidiolex — which showed some evidence of possible adverse liver effects, interactions with other drugs, drowsiness, diarrhea and mood changes — is likely among the reasons for its hesitancy to deem CBD to be generally recognized as safe.
Until compelling evidence proves as much to the FDA, it will undoubtedly continue to regulate CBD products as drugs, with all of the attendant rules and restrictions, including, importantly, that no health benefit claims can be made for CBD products. The class action plaintiffs bar has picked up on this, filing several recent lawsuits alleging that CBD products companies have misled consumers into believing their products are legal and that the products have proven health benefits.
Addressing FDA regulations and marshaling the necessary evidence to make health benefit claims are things that most CBD companies are not prepared for, but they should get themselves to that state of readiness as soon as possible to avoid FDA enforcement actions and class action exposure.
In summary, though some consumers are clamoring for better and faster access to CBD products, the current legal and regulatory climate in the U.S. puts companies at risk if they market, label and promote products in the manner demanded by some consumers and CBD advocates. Companies that familiarize themselves with the five significant risk areas/issues described above and develop their own strategies for dealing with them as soon as possible will likely reduce their risk.
This post was first published on Law360.