By Seth Goldberg, Gerald L. Maatman, Jr., and Jennifer A. Riley
Duane Morris Takeaways: Cannabis products – such as vapes, pre-rolled joints, tinctures, gummies, and beverages – are consumer packaged goods that are required under state law to be marketed with packaging and labeling that demonstrates their safety to consumers. Although the U.S. state-licensed cannabis industry has been one of the fastest-growing industries in the U.S. over the past decade, consumer fraud lawsuits arising out of alleged packaging and labeling problems, which are a common risk for CPG manufacturers in other industries, have, until now, not been a major consideration for the cannabis supply chain. However, that is changing. As three recent lawsuits suggest, consumer fraud class actions may be on the rise in the industry. Given the media attention cases like these attract, and the potential for damages for thousands or millions of potential consumers, the cannabis supply chain should take notice. As discussed below, this is going to be especially true once cannabis products are permitted to be sold interstate.
In Centeno et al. v. DreamFields Brands Inc., and Med for America, Inc., a consumer class action filed on October 20, 2022, in the Superior Court of California for Los Angeles County, two putative class representatives filed a putative class action against the manufacturers of Jeeter-branded pre-roll joints on behalf of “all persons who, while in the State of California and within the applicable statute of limitations period, purchased or more Jeeter Products.” The complaint alleges that the putative class representatives purchased a variety of Jeeter-branded pre-rolled joints based on the high THC potencies stated on the labeling of such products, but those products were actually lower in THC than stated on the labeling. Given that products with greater THC potency are priced higher than products with lower THC, the putative class representatives claim they paid a premium they would not have paid had they known the true THC potency of the Jeeter products they purchased, and thus they suffered an economic loss for which they should be made whole. Their complaint alleges that “millions of other consumers” bought Jeeter pre-rolled joints and suffered the same economic loss. As the Complaint asserts:
If Defendants told the truth — that is, that its products’ THC content is substantially lower than represented on the label — the price of its Products would fall dramatically. If consumers knew the truth — that the Products contain substantially less THC than the label says — Defendants could not sell their Products for its current prices. Indeed, as explained above, cannabis products with lower declared amounts of THC content sell for substantially less than ones with higher declared amounts of THC content. Accordingly, if Defendants told the truth about the THC content of their products, they would have had to lower the price, and Plaintiffs and class members would have paid less.
In addition to seeking for themselves and the class of “millions of consumers” damages for the amounts overpaid for the Jeeter-branded pre-rolls, the putative class representatives also seek punitive damages, attorneys’ fees, and injunctive relief to stop the allegedly fraudulent labeling under California’s unfair competition and false advertising statutes, as well as various common law claims.
We previously wrote about a number of separate actions filed against Curaleaf, the largest U.S. cannabis product manufacturer in 2021, arising out of allegations that Curaleaf mislabeled tinctures containing THC that were marketed as containing CBD. One of those cases, Williamson v. Curaleaf, Inc., a consumer class action filed in the U.S. District Court for the District of Oregon on May 30, 2022, was reported last week to have settled for payments of $150 to $200 for as many as 500 class members who are alleged to have consumed the mislabeled Curaleaf tinctures. Like the class action complaint filed in Centeno arising out of the mislabled Jeeter pre-rolls, Williamson’s class action complaint sought statutory damages, punitive damages, and attorneys’ fees under Oregon’s consumer fraud statute known as the unfair Trade Practices Act.
In addition to Centeno and Williamson, we previously wrote about Plumlee v. Steep Hill Inc., a putative class action filed in the U.S. District Court for the Eastern District of Arkansas against cannabis testing lab and cannabis cultivators NSMC-OPCO LLC, Bold Team LLC and Osage Creek Cultivation LLC, which, like Centeno, arose out of allegations that the operators falsified the amount of THC in their cannabis products. As in Centeno, Plumlee seeks class-wide damages for economic loss, i.e., amounts overpaid for mislabeled cannabis products, and as in Centeno and Williamson, Plumlee seeks punitive damages and attorneys’ fees for the alleged fraudulent conduct. Interestingly, although the claims in Plumlee are sound in consumer fraud, Plumlee asserts that the defendants acted together to form an enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act. As we previously wrote, these claims could just as easily been asserted as consumer fraud.
Future Litigation Prospects
There are a few reasons cannabis consumer fraud class actions may not have been attractive to the plaintiffs’ class action bar in recent years. First, given that cannabis products may only be manufactured and sold in the same state, the size of a class and the amount of damages are limited to consumers in a single state, as opposed to the type of nationwide class action one see with other CPGs. Indeed, Centeno, Williamson, and Plumlee, assert claims on behalf of a single state-wide class.
Second, most state cannabis markets have only recently – in the past few years – begun to grow into markets of hundreds of thousands or millions of consumers, and thus a single state class a few years ago would likely have been too small to warrant the investment in an expensive litigation by plaintiffs’ counsel.
Third, and similarly, defendants’ pockets are deeper today as a result of the increased sales over time than they were just a few years ago. For these reasons, the continued growth of state cannabis markets is likely to result in more cannabis consumer fraud class actions.
However, the interstate sale of cannabis products is really going to change the risk spectrum from consumer fraud class actions.
Once interstate sales of cannabis products are permitted, the mass marketing and distribution of cannabis products to consumers in multiple states in a region, if not nationally, will open the door to claims asserted on a nationwide basis that a cannabis consumer product was mislabeled. While such claims would be asserted under state-specific consumer fraud laws, they may be asserted on behalf of consumers around the country, resulting in significant exposure to the cannabis supply chain, i.e., growers, processors, labs, and dispensaries, for economic loss and punitive damages, as well as attorneys’ fees. These types of claims are routinely filed by the plaintiffs’ class action bar on behalf of nationwide classes arising out of the alleged mislabeling of other CPGs, and that bar will no doubt have cannabis products in their sights when interstate sales cannabis begin.