The cannabidiol (CBD) industry has been on the receiving end of over a half dozen new consumer class actions in recent weeks, which is likely only the beginning for the emerging industry.
The lawsuits have been filed against CBD manufacturers and retailers in numerous jurisdictions, including California, Florida, Massachusetts, and Colorado. The allegations in the lawsuits vary, but several of the lawsuits share some similarities.
For example, a number of the lawsuits allege that the CBD company defendant sold the plaintiff CBD products that were mislabeled and/or were deceptively marketed because the products allegedly did not contain the amount of CBD and/or THC advertised. In some of these lawsuits, the plaintiffs allege that the CBD products were advertised as having no THC, but in reality the product allegedly did contain THC. Several of these lawsuits involve plaintiffs who allege they were fired from their jobs for failing drug tests due to THC contained in the products they purchased and consumed that they believed were THC-free.
Yet in other lawsuits, the plaintiffs allege that the products contained substantially less CBD and/or THC than the product labels or advertisements claimed they contained. Other class actions allege that the CBD products at issue were illegally advertised as dietary supplements and/or were marketed using “drug claims” (e.g., that either the product specifically or CBD generally can alleviate certain medical conditions) in contravention with the U.S. Food and Drug Administration’s (FDA) prohibition against such advertising and marketing.
The plaintiffs in these lawsuits have sought to establish and represent various classes of consumers that have purchased similar products from the defendant companies. The proposed classes range from state to nationwide consumer classes seeking over $5 million in purported damages based on a number of claims, including violation of consumer protection and unfair competition laws; breach of contract; false, misleading, and deceptive advertising; and breach of implied and express warranties.
These lawsuits come as the FDA has increased its focus on the industry. On November 25, 2019, the FDA issued warning letters to 15 companies that were allegedly illegally selling products containing CBD in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act). The FDA has issued similar warning letters in the past, and has indicated that it is taking a serious look at the CBD industry, how CBD products are marketed and advertised, and the safety issues associated with those products. The companies receiving the warning letters allegedly violated the FD&C Act in a variety of ways, including marketing CBD products with health and drug claims, infusing CBD into food and drinks, including CBD in animal food, and marketing CBD products as dietary supplements. The FDA has previously issued guidance (and warning letters) making it clear that the FD&C Act prohibits CBD companies from (1) marketing their products to treat diseases or for other health/therapeutic purposes, unless the FDA preapproves the product for those uses; and (2) infusing CBD into animal or human food or drinks.
In addition to issuing the new round of warning letters, the FDA also issued a revised consumer update concerning CBD products. The update essentially warns consumers that there is a lot unknown about the efficacy and health impacts of CBD products. It also warns consumers that unless the FDA has preapproved CBD products for disease or health-related purposes (which it has done for only one product so far), the products are not necessarily safe for those uses. The FDA noted that it is going to continue to push for reliable CBD-related research to try to better understand the possible benefits and health risks of CBD products and then formulate regulations to govern such products. Until then, the CBD industry will continue to operate without much regulation and pose challenges for financial institutions that seek to provide services to CBD businesses.
The class action lawsuits and the FDA’s increased activity in the CBD market should put the industry on notice that both plaintiffs’ lawyers and regulators are increasingly scrutinizing the advertising and marketing activities of CBD companies. As such, companies must proactively implement product, advertising, and marketing review processes to ensure compliance with state and federal laws governing their products to help minimize the risk of being on the receiving end of the next wave of consumer class actions or an FDA enforcement action.
