The cannabis industry’s primary concern when getting businesses up and running has long been navigating the patchwork of applicable and conflicting laws. Amongst the ever-growing number of states legalizing or decriminalizing limited marijuana use, the cannabis industry has achieved a delicate balance in growing its consumer base amidst the looming danger of federal illegality. Though this remains an important focus for cannabis companies, they ought to also consider a looming pitfall: exponential damages under the Telephone Consumer Protection Act (TCPA) that can cripple companies before the legal cannabis landscape is settled. Plaintiffs’ attorneys have taken notice of the growth of cannabis companies, and we have seen a substantial uptick in litigation against start-up and established cannabis companies.
The TCPA prohibits the use of an automatic telephone dialing system (ATDS) to call, text, or fax a party without their prior express (and sometimes) written consent. This statutory summary seems straightforward, but in actuality the TCPA is just as fraught with conflict as cannabis laws and regulations. Specifically, Section 227(a)(1) of the TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” This definition alone has been the root of consternation amongst United States Circuit Courts, with the Eleventh, Seventh and Third Circuits favoring a restrictive interpretation barring only those calls made through platforms that randomly or sequentially store or generate numbers, while the Ninth, Sixth and Second Circuits interpret the phrase more broadly, holding that the TCPA covers devices with the capacity to automatically dial telephone numbers from a stored bank, or produced from a random or sequential number generator.
After the United States Supreme Court upheld the constitutionality of the TCPA without the government-debt exception, it faced the emerging Circuit Court conflict head-on, granting certiorari in an action that will definitively interpret what constitutes an “automatic telephone dialing system.” As companies in all sectors eagerly await the Supreme Court’s decision, so too should the cannabis industry. The Court’s ruling will dictate how all companies can advertise their business moving forward, and in the interim, companies must continue grappling with fractured circuit court precedent. Emerging sectors such as the cannabis industry are uniquely effected by this legal uncertainty, as they necessarily must actively market their products to build a stable consumer base and grow.
Nevertheless, there are safeguards that cannabis companies can incorporate to protect themselves from the uncapped and cumulative potential of: $500 penalties for each violation of the National Do Not Call Registry; and at least $500 (and up to $1500) for each TCPA violation, with the higher penalty applying if the claimant can show that the advertiser knowingly and willfully violated the TCPA. First and foremost, the cannabis industry should obtain prior express written consent before directly contacting consumers, identifying the number(s) which the company may call or text, and containing some affirmative means of consumer agreement.
Companies also need to be aware of state area codes, as knowingly sending advertisements into other states may provide a basis for a consumer to hale the company into federal court. Further, cannabis companies should implement consistent reassignment checks on the numbers provided, as the consumer’s consent applies to the person—not the number provided. Thus, if a consumer’s given number is reassigned to a new party, consent to call that number is no longer applicable. Additionally, cannabis companies should direct their efforts to suppressing all numbers on the National Do Not Call Registry, on state or local Do Not Call Registries, and on an internal Do Not Call list—which companies should create if they have not already done so. Do Not Call restrictions apply regardless of whether an ATDS is used, so any company that makes marketing calls or texts must be aware of these restrictions.
Realistically, cannabis companies are likely to outsource their advertisement efforts to third-party agents, adding a new factor to the already fraught marketing process. When entering into these agreements, cannabis companies should vet their vendors and servicers, ensuring that the marketing agent has strict rules in place for TCPA compliance. Cannabis companies should require that these third-parties contractually agree that all laws, including the TCPA, will be strictly followed, and should require evidence of compliance prior to entering into such contracts. To add an additional level of security, cannabis companies that outsource their marketing should seek to include indemnification provisions into their contracts. Finally, amidst the steady rise of cannabis companies facing TCPA suits, companies should strongly consider hiring an attorney to review all of the contracts and consent procedures to reduce TCPA and other risk exposure.
Our Cannabis and TCPA teams are here to help provide experienced compliance advice and representation in this bourgeoning industry.
- Glasser v. Hilton Grand Vacations Co., LLC, No. 18-14499 (11th Cir. 2020); Evans v. Penn. Higher Educ. Assistance Agency, No. 18-14586 (11th Cir. 2020). ↩
- Gadelhak v. AT&T Svcs., Inc., No. 19-1738 (7th Cir. 2020). ↩
- Dominguez v. Yahoo, Inc., 894 F.3d 116 (3rd Cir. 2018).↩
- Marks v. Crunch San Diego, LLC, 904 F.3d 1041 (9th Cir. 2018).↩
- Susan Allan et al. v. Penn. Higher Ed. Assist. Agency, No. 19-2043 (6th Cir. 2020). ↩
- Duran v. La Boom Disco, Inc., No. 19-600-cv (2nd Cir. 2019). ↩
- Barr v. American Association of Political Consultants, et al., 140 S.Ct. 2335 (2020). ↩