Article: Class Actions Increasingly Targeting Cannabis Companies

CBE have published the following article.. Here are a selection of the highlights

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Increasing Cannabis Class Action Risks

The growth of the cannabis marketplace in recent years has prompted increased litigation risks, especially regarding consumer class actions. From data-related class action concerns to security disclosures and labeling issues, cannabis companies may see themselves facing class action filings.

Surveying court dockets across the country, Perkins Coie found approximately 100 new cases filed between 2019 and 2020 that highlight potential litigation risks related to cannabis labeling, marketing, and disclosures.

Cannabis Labeling

The most significant cases for cannabis product manufacturers are the approximately 30% of claims alleging: (i) that the labeled amount of THC or CBD was inaccurate or (ii) that the CBD product was “illegal to sell.”

Both categories of cases were prompted by the FDA’s reports and public announcements. At the federal level, the FDA has announced that it is “currently illegal to market CBD by adding it to a food or labeling it as a dietary supplement.” Similarly, the FDA has reported concerns with potentially inaccurate CBD concentration information on product labels, finding that dozens of products contained levels of CBD that varied from the product’s labeling.

The courts and the cannabis industry continue to await clear guidance from the FDA on how it will regulate CBD products, particularly regarding standards for labeling. In the meantime, many courts are pressing pause on CBD class action matters, staying these cases to allow the FDA to develop enforcement policies before the court is asked to interpret the existing law.

Cannabis Marketing

The Telephone Consumer Protection Act (TCPA) was associated with approximately 20% of the class action filings that Perkins Coie identified. These cases alleged that consumers received unsolicited, autodialed communications from cannabis companies. The TCPA is a favorite of the plaintiffs’ bar, given that statutory damages under the law can be considerable. Companies can be liable for $500 per unwanted text or call, and the statute provides that courts can award three times that amount for willing and knowing violations of the law. In addition, there is no cap to potential recovery available under the law, which can create sizeable damage awards for even relatively small numbers of calls or texts. While a recent Supreme Court decision may cool this trend by adopting a narrower interpretation of an “autodialer” system, as we have discussed elsewhere, cannabis businesses should nonetheless get smart about TCPA litigation risks.

Cannabis Disclosures and Other Cases