Three decisions staying CBD class actions in two months may signal a trend, especially considering that the Courts in these cases refer to the other’s decisions. Such a trend may keep the plaintiffs’ bar at bay, as it would cast doubt on the viability of consumer class actions asserting CBD violations, or at least it could make the cases less appealing to the plaintiffs’ bar because a stay makes the timing of a settlement or resolution even more uncertain.
Consumer class actions regarding CBD marketing are on the rise. In recent months, a number of federal judges have placed lawsuits concerning the marketing of CBD-infused products on hold because the U.S. Food & Drug Administration—tasked with regulating those products under the 2018 Farm Bill—still has not issued regulations governing how they can be marketed. This further complicates the already confusing federal-state regulatory structure concerning the treatment of CBD products.
As a commercial litigator who has handled a broad range of claims in highly regulated industries over the past 20 years — particularly in complex matters such as class actions involving claims brought by consumers and shareholders — and given my experience spearheading the development of Duane Morris’ cannabis industry group, which has included providing regulatory and business advice to a number of businesses and individuals with cannabis-related interests, I have been expecting the maturing cannabis industry to eventually mirror other industries when it comes to using commercial litigation to resolve disputes between businesses and to address claims of injury allegedly experienced by aggreived consumers and shareholders. It appears the time has come. Now, as opposed to even just a few months ago, not a day goes by when the daily legal news outlets that report on litigation matters filed in federal and state courts around the country do not include matters pertaining to adult use marijuana, medical marijuana, and/or hemp.
Today alone, legal news outlets are reporting about a shareholder deriviative action being filed against the manufacturer of cannabinoid-containing transdermal patches, a maker of mobile hemp dryers suing a distributor for alledgedly stealing trade secrets, a publicly-traded company that owns cannabis brands being sued for breach of contract by an MSO arising out of a failed merger agreement. Claims like these are among the many product liability, stock-drop and securities fraud, tradmark infringement, FLSA, and employment litigation matters to be filed in 2020 relating to cannabis; not to mention the federal and state regulatory cannabis-related enforcement actions also commenced. Just as in other industries, COVID-19 is likely to spur litigation in the space because of strains on resources and performance caused by business disruptions and the slower economy. To be sure, the plaintiffs’ bar has cannabis on its radar.
Thus, now more than ever, it is critically important for cannabis businesses to implement the necessary compliance measures, including making sure appropriate insurance coverage, e.g. premises, products, and D&O, has been obtained, that could protect their businesses from the cost and disruption of commercial litigation. Likewise, cannabis-specific nuances, such as the enforceability of contracts and jurisdictional questions, require careful evaluation by experienced counsel advising plaintiffs and defendants who are considering filing, or who have been brought into, a commercial litigation.
On April 20, the FDA issued warning letters to two CBD companies – BIOTA Biosciences and Homero Corp., dba Natures CBD Oil Distribution – directing them to remove statements from their labeling and advertising on websites and social media claiming that CBD can cure opioid addiction among other illnesses. I am attaching the FDA’s warning letter, as it provides very useful information to the market as to the FDA’s current views of CBD products. As set forth in the warning letter, the FDA continues to view CBD as (1) an unsafe food additive; (2) not satisfying the definition of a “dietary supplement,” and (3) as unapproved new drugs if marketed as “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or any function of the body.” In the case of Homero, the CBD products were advertised with the following claims, among others:
“Natures Pure CBD Oil has been effective in the treatment and eradication of opiate use.”
“CBD Oil Inhibits the reward-facilitating effect of morphine”
“Vaping CBD Oil to Treat Asthma . . . Your best best [sic] to combat Asthma is by vaping CBD Oil.”
“Natures Pure CBD is a strong anti-oxidant that can alleviate lower epileptic seizures, psychotic disorders, and has neuroprotective qualities.”
For consumers, the widespread availability of products containing cannabidiol (CBD) is old news. But for those in the cannabis industry—and in particular, those monitoring applicable regulatory developments—the state of CBD remains largely in flux and continues to be marred by uncertainty.
Under the 2018 Farm Bill, the U.S. Food and Drug Administration (FDA) retained its regulatory authority over products derived from hemp, including CBD incorporated into products it traditionally regulates, such as food, dietary supplements, and cosmetics. Unfortunately for the industry, FDA has yet to propose or issue formal regulations concerning the manufacture, distribution, or sale of such products. At the same time, FDA has issued numerous warning letters to producers and retailers incorporating CBD into products operating in the complex gray area between state and federal law. Nevertheless, recent events occurring across all three federal branches of government may reflect an impetus for change in FDA’s approach to CBD products.
In this second article of his Cannabis Patent Review series, Duane Morris partner Vince Capuano reports on recently granted U.S. patents in various areas of cannabis technology.
There are plenty of reports and testimonials on the medical benefits of cannabis. Time, and better data, will determine whether these benefits are realized, and whether some are overblown, and the U.S. FDA will decide when the therapeutic uses of cannabinoids are safe and effective, and approvable for human use in the U.S. The FDA has approved CBD (cannabidiol), the principal non-psychoactive constituent in cannabis, for the treatment of certain types of seizures. The approval of Epidiolex (NDA Approval Holder: GW Research Ltd.) brings the therapeutic use of CBD as an active drug substance within the jurisdiction of the FDA. Thus, because CBD is the active drug substance in an FDA-approved pharmaceutical (Epidiolex), the FDA is currently considering regulations for the testing and approval for all drug products containing CBD.
Because enforcement of patent rights in the U.S. is governed by federal law, the Schedule I status of cannabis continues to cast uncertainty over whether cannabis patent rights can actually be challenged or enforced. That uncertainty diminished with the filing of the first patent infringement case in federal court on a patent covering a cannabis-related technology on July 30, 2018 when United Cannabis Corporation (“UCANN”) sued Pure Hemp Collective, Inc. (“Pure Hemp”) in the United States District Court for the District of Colorado (United Cannabis Corporation v. Pure Hemp Collective, Inc.(Case No.: 1:18-cv-01922-NYW) for patent infringement. (https://www.duanemorris.com/articles/patent_litigation_cannabis_industry_2_cases_to_review_0319.html) UCANN alleged that Pure Hemp is selling products that are encompassed by the claims of its patent, US 9,730,911. Pure Hemp denied infringement and counterclaimed that the UCANN patent is invalid and should never have been granted because similar products were well known long before the filing date of the patent.
These proceedings have now moved to the claim construction stage, a stage specific to patent litigation, The claims in a patent specify the rights to which the patent owner is entitled, just as language in a deed to real property specifies the boundaries of the real property. But, unlike the quantitative verifiable measurements taken to define the boundaries of real property, claim language can be imperfect and open to more than one interpretation. Continue reading Cannabis patent litigation update: construing cannabis claims→
Duane Morris associate Kelly Bonner shares legal insight on CBD products and services in the January issue of DaySpa magazine.
From the publication:
Consider the source. CBD can be derived from both hemp and marijuana, which have different definitions in U.S. law and are subject to different statutory and regulatory requirements. Hemp-derived CBD products are not illegal to sell and possess under federal law, as long as they contain no more than 0.3 percent tetrahydrocannabinol (THC). Marijuana has more than 0.3 percent THC, and is a Schedule I controlled substance under the federal Controlled Substances Act.
Get proof. Given the current lack of federal testing requirements for CBD products, it can be difficult to ensure that those purchased from third-party vendors contain no more than the permitted level of THC. So it’s extremely important that spas get anything containing CBD from a trustworthy supplier who can verify ingredients, confirm THC levels with third-party labs and/or provide certifi cates of analysis.
Act locally. While the 2018 Farm Bill lifted the federal ban on the commercial cultivation of hemp and derivatives that contain no more than 0.3 percent THC, the ability to manufacture, market and sell CBD products is still heavily regulated at the state level, and changing rapidly.
Make no promises. The U.S. Food and Drug Administration (FDA) has issued warning letters to a number of CBD companies that have touted their products as having certain health benefi ts in their promotional materials and on packaging or websites. Spas should ensure that any products or services offered don’t come with false or misleading claims.
Handle with care. Although research into the risks of CBD use is ongoing, the FDA has noted potential adverse health effects linked to the use of cannabis products containing THC by pregnant or lactating women. Even though CBD topicals typically contain very low levels of THC, spas should be up front with clients about potential risks.
Since the 2018 Farm Bill passed in December 2018, removing hemp from the Controlled Substances Act and thus legalizing it under federal law, consumer goods containing the hemp-derivative cannabidiol (CBD) have become exceptionally popular. With that growing popularity among consumers has come increased scrutiny by federal regulators whose mission is consumer safety and protection, such as the Food and Drug Administration and Federal Trade Commission, and now by the plaintiffs’ bar, which files consumer class actions based on advertising. As the recent spate of warning letters and consumer class actions demonstrate, hemp-derived CBD product manufacturers and others in the supply chain for those products have to be mindful of the claims they make to consumers about their products.
Duane Morris Partner Frederick Ball is quoted in the Agri-Pulse article “Regulatory Uncertainty Hangs Over Production of Industrial Hemp.”
Nearly a year after the 2018 farm bill legalized industrial hemp production, the business community continues to seek answers to questions about testing and marketing of products derived from the crop, the commercial potential of which has sparked interest throughout the country. […]
Rick Ball, a lawyer with Duane Morris in Boston, said on the sidelines of the FDLI meeting that he has “no clue” when FDA might take action.
Ball said regulatory confusion is stoked in some cases by different rules in different states. In Massachusetts, for example, farmers were left holding their hemp after the state followed FDA and said CBD cannot be used in foods or dietary supplements or marketed with health claims.
“They lost a huge market for their product,” Ball said. […]