Cannabis Products Liability/Consumer Fraud Litigation and CBD Regulation

Seth Goldberg
Seth A. Goldberg

Yesterday, a California court federal court judge did not follow other federal courts in staying a consumer class action brought on behalf of CBD product consumers on the basis of the FDA’s primary jurisdiction over the regulation of CBD products.  The Court in Rodriguez v. Just Brands USA Inc. et al., 2:20-cv-04829, C.D. Cal., determined that claims that CBD product maker Just Brands’ labeling did not accurately state the amount of CBD in its products could give rise to state law claims for breach of warranty  and fraud that should not be stayed because, according to the Court, the FDA’s forthcoming regulations would not alter the expectation that CBD product manufacturers would accurately convey the amount of CBD in their products.  

The decision in Rodriguez should be on the radar of the entire cannabis industry, as it demonstrates how products liability and consumer class action lawsuits may be brought under state statutory and common law to seek damages for improperly labeled cannabis products.  Cannabis – hemp and marijuana – product manufacturers should be sure to build into their internal compliance safeguards against such claims.  

Relatedly, on the radar for hemp-derived CBD is legislation proposing to categorize CBD as a dietary supplement under the FDA’s regulatory regime for drugs, dietary supplements and foods and beverages under the Food, Drugs and Cosmetic Acts. That bill will be introduced today by Sens. Ron Wyden (D-Ore.), Rand Paul (R-Ky.), and Jeff Merkley.  

 

FTC Approves Consent Orders Against CBD Manufacturers

Seth Goldberg
Seth A. Goldberg

As I previously wrote, in December 2020 the FTC announced consent agreements reached with CBD manufacturers 1) Bionatrol Health, LLC; 2) Epichouse LLC (First Class Herbalist CBD); 3) CBD Meds, Inc.; 4) HempmeCBD; 5) Reef Industries, Inc.; and 6) Steves Distributing, LLC, in connection with a “crackdown” the FTC termed “Operation CBDeceit” for allegedly spurious health claims. The FTC today followed up that announcement with an announcement that those consent orders have been approved by the FTC in unanimous votes as to each. These manufacturers will now be required to comply with the consent orders, which could include fines and ceasing to make “unsupported health claims” in connection with the marketing of their products. 

FTC Ratchets Up Enforcement Against “Spurious” CBD Health Claims

Seth Goldberg
Seth A. Goldberg

In connection with a crackdown on CBD manufacturers pursuant to its “Operation CBDeceit,” the FTC announced today settlements with six CBD-infused product manufacturers who, according to the FTC, allegedly made a “wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and others.” Under the settlements of the respective Complaints against them, each of the manufacturers will be required to pay a fine, and cease making “unsupported health claims” in connection with the marketing of their products.

In issuing its press release today the FTC attached the Consent Agreement and the FTC’s findings of violations of the FTC Act, which are set forth in a draft Complaint. These documents illustrate the FTC’s procedures in actions like these, and highlight the FTC’s concerns regarding allegedly misleading representations about CBD-containing products in violation of the FTC Act. Specifically, the FTC views health claims in connection with marketing such products to be misleading unless they “rely upon competent and reliable scientific evidence that is sufficient in quality and quantity based on standards generally accepted by experts in the relevant disease, condition, or function to which the representation relates, when considered in light of the entire body of relevant and reliable scientific evidence, to substantiate that the representation is true.”

Significantly, the FTC has not required the settling manufacturers to remove their products from the shelves and to cease selling them. They must, however, remove any unsupported health claims. Moreover, it would not be surprising if the announcement of these settlements spawns consumer fraud litigation against the manufacturers, which is often a much more serious concern to the business.

It is unclear how “Operation CBDeceit” will be implemented when the Biden administration takes over. For now, however, CBD manufacturers should continue to be mindful of their packaging, labeling and other marketing materials.

State-Legal Marijuana a Clear Winner in 2020 Voting

Seth Goldberg
Seth A. Goldberg

Voters in the five states where the legalization of marijuana was on the ballot voted in favor.

In the populous states of New Jersey and Arizona, voters legalized marijuana for recreational use by adults over the age of 21. Given New Jersey’s proximity to New York and Pennsylvania, where medical marijuana programs have been popular, legalization in New Jersey could have a domino effect in the northeast, especially considering the tax revenue that will be gained by New Jersey from New York and Pennsylvania residents who travel there every day for work, the Jersey shore and casinos, and other reasons.

Voters in South Dakota and Montana also voted to legalize marijuana for recreational purposes, South Dakota voters also approved medical marijuana, and voters in Mississippi voted to legalize marijuana for medical purposes to treat 22 qualifying health conditions.

Seth Goldberg is a Team Lead of the Cannabis Industry Practice at Duane Morris

Duane Morris Partners Seth Goldberg and David Landau Named to ATACH CBD Task Force

Duane Morris partners Seth Goldberg and David Landau have been named to the American Trade Association for Cannabis and Hemp (ATACH) Task Force, which will focus on the harmonization of laws and regulations that contribute to the bifurcated treatment of hemp and marijuana, as well as the evolving regulatory landscape for cannabis industry participants. Mr. Goldberg, a team lead for the Duane Morris Cannabis Industry Group, joined ATACH president Michael Bronstein and Gary Kaminsky of Acreage Holdings in their meeting with the White House’s Office of Management and Budget in August.

For more information, visit the ATACH website.

Consumer Class Actions Against CBD Companies Are Hitting a Snag

Seth Goldberg, partner and team lead of Duane Morris’ Cannabis Industry Group, and Justin M. L. Stern, Duane Morris associate, authored the Cannabis Industry Journal article, “Consumer Class Actions Against CBD Companies Are Hitting a Snag.”

Excerpt from the article:

Over the past year, more and more consumer class actions have been filed against manufacturers and distributors of CBD-infused products. These actions typically assert claims based on how the product is marketed, such as whether it (i) contained the advertised amount of CBD, (ii) contained more THC than it should have or (iii) has the ability to provide the therapeutic benefits touted. The marketing of these products is subject to regulation by FDA, which has yet to issue pertinent regulations that have been expected since passage of the 2018 Farm Bill legalizing hemp and CBD products derived therefrom. Thus, in recent months, a number of federal courts have stopped these class actions in their tracks pending further guidance from FDA as to how CBD-infused products should be regulated. This growing body of precedent should be welcome news for the CBD supply chain, as it may provide a disincentive to the plaintiffs’ bar to expend their resources on similar actions until the regulatory framework is clear.

Please visit the Cannabis Industry Journal website to read the full article.

Webinar with NBA Hall of Famer Dominique Wilkins: Professional Sports & CBD: The Journey Ahead

Duane Morris, MGO and ELLO Capital will be hosting the webinar, “Professional Sports & CBD: The Journey Ahead,” on Tuesday, September 15, 2020, from 2:00 p.m to 3:00 p.m. Eastern.

REGISTER

About the Program

As awareness of the health benefits of CBD grows, professional athletes are voicing their support for the supplement as a safe substitute to help reduce inflammation and manage pain—and many are even investing in CBD or launching their own brands. Despite the World Anti-Doping Agency (WADA) removing CBD from their list of prohibited substances in 2018, many professional sports leagues continue to ban CBD, resulting in market and regulatory complexity for the sports world. This panel discussion will explore the legality of CBD use for professional athletes and provide an overview of the consumer and investor markets for CBD in the sports nutrition and recovery industries. The presentation will be followed by a lively discussion around the role of CBD in professional sports with NBA Hall of Famer Dominique Wilkins, who currently serves as vice president of basketball and special advisor to the CEO of the Atlanta Hawks.

Moderator

Presenters

  • Hershel Gerson, CEO and Managing Director, ELLO Capital
  • Seth A. Goldberg, Partner and Team Lead, Duane Morris Cannabis Industry Group
  • Chris Howard, Vice President, General Counsel & Chief Compliance Officer, E-Alternative Solutions
  • Dominique Wilkins, Nine-Time NBA All-Star; NBA Hall of Fame Inductee; and Vice President of Basketball and Special Advisor to the CEO, Atlanta Hawks

About the Duane Morris Cannabis Industry Group

Duane Morris attorneys in offices throughout the U.S. and internationally have extensive experience with the wide array of issues attendant to legal cannabis business activities, including licensing for cultivation, processing and dispensing; litigation; banking and finance; raising and deploying capital; mergers and acquisitions; protecting intellectual property; real estate development; public company representation and SEC filings; land use and zoning; healthcare and research; taxation; and cross-border transactions. In addition to advising participants in the medical and adult-use cannabis and hemp/CBD industries, as the industry has grown, Duane Morris attorneys experienced in cannabis-related issues frequently advise clients in other sectors whose businesses intersect with the expanding regulated cannabis sector.

About the MGO | ELLO Cannabis Practice

The MGO | ELLO cannabis practice provides a collaborative professional services offering that delivers world-class financial, tax and advisory services focused on empowering cannabis and hemp industry operators and investors to achieve their business goals. Its subsidiary ELLO Capital, a boutique investment bank, provides M&A, capital raising and strategic advisory services to companies and investors in cannabis, hemp and impacted industries. Together the cannabis platform delivers a suite of proven solutions to help operators, regulators and institutional investors navigate these complex industries.

New FDA Draft Guidance on Cannabis-Related Clinical Research Omits Discussion of Nondrug CBD Products

On July 21, 2020, the U.S. Food & Drug Administration (FDA) issued draft guidance outlining the agency’s current thinking on the development of drugs containing cannabis or cannabis-derived compounds. The new guidance is disappointing to many in the cannabis industry because it does not provide insight into the FDA’s views on the marketing of nondrug, hemp-derived CBD products.

To read the full text of this Duane Morris Alert, please visit the firm website.

Is this a Trend? A Third Court Stays Class Action Given FDA’s Primary Jurisdiction Over CBD

Seth Goldberg
Seth A. Goldberg

Yesterday, the U.S. District Court for the Eastern District of California stayed the matter styled Glass v. Global Widget d/b/a Hemp Bombs, a consumer class action alleging that Hemp Bombs, which manufactures CBD-infused edibles, tinctures and capsules, falsely advertised the amount of CBD in its gummies, and thereby sold products that were misbranded and adulterated under the Food, Drug & Cosmetics Act (FDCA), on the basis that the regulation of CBD is withing the primary jurisdiction of the FDA, which is in the process of developing regulations and guidance over CBD. We have previously written about two other consumer class actions arising out of similar clams of misbranded CBD products that have also been stayed recently under the “primary jurisdiction” doctrine.

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.