Since the 2018 Farm Bill passed in December 2018, removing hemp from the Controlled Substances Act and thus legalizing it under federal law, consumer goods containing the hemp-derivative cannabidiol (CBD) have become exceptionally popular. With that growing popularity among consumers has come increased scrutiny by federal regulators whose mission is consumer safety and protection, such as the Food and Drug Administration and Federal Trade Commission, and now by the plaintiffs’ bar, which files consumer class actions based on advertising. As the recent spate of warning letters and consumer class actions demonstrate, hemp-derived CBD product manufacturers and others in the supply chain for those products have to be mindful of the claims they make to consumers about their products.
FDA and FTC Warning Letters
On November 25, 2019, the U.S. Food & Drug Administration (FDA) issued a flurry of warning letters to 15 U.S. companies for illegally selling products containing CBD in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act). These warning letters come in the wake of similar joint warning letters sent by the FDA and the Federal Trade Commission (FTC), the most recent on October 10, 2019. In the October letter, the FDA and FTC issued a joint warning to Rooted Apothecary LLC of Naples, Florida, for illegally selling unapproved CBD products that claim to solve a variety of health issues.
The warning letter identified four categories in which the company violated the FD&C Act and the FTC Act. Those categories include dietary supplement labeling, unapproved new drug products, misbranded drug products, and unsubstantiated advertising claims. Regarding the advertising claims, the letter warned that Rooted Apothecary LLC, in violation of the FTC Act, made unsubstantiated claims on its products, product webpages, online store, and social media websites that its products could prevent, treat, or cure certain ailments. Rooted was given 15 days to state how it would correct the violations and cautioned that failure to correct the violations promptly might result in legal action, including product seizure and/or injunction.
However, as a new wave of consumer class actions demonstrates, these warning letters can directly lead to a company being sued by consumers in addition to legal action by the government and product seizure.
Consumer Class Actions
In Dasilva v. Infinite Product Company, 2:19-cv-10148, a consumer class action filed November 27, 2019 in the Central District of California, the plaintiff alleges that the defendant, Infinite Product Co., intentionally marketed and sold illegal CBD products. The plaintiff based his complaint on a recent warning letter that the FDA sent to Infinite, claiming that the company misbranded drugs in violation of the FD&C Act. The warning letter was one of several the FDA sent on November 25, and the FDA cited claims made on the company’s website that CBD could alleviate symptoms of autism and that it could treat diseases like hepatitis, cancer, and Tourette syndrome. The complaint includes false advertising, unfair competition, and warranty claims, and claims under the California Sherman Food, Drug, and Cosmetic Law, which adopts federal labeling regulations as the state’s food labeling requirements. The plaintiff is seeking, among other things, monetary damages, injunctive relief, and disgorgement of profits.
In Colette et al. v. CV Sciences Inc., 2:19-cv-10227, filed December 3, 2019 out of the Central District of California, the plaintiffs filed a consumer class action alleging that the defendant’s company’s products were mislabeled as dietary supplements or contained “the illegal dietary ingredient CBD.” The plaintiffs are represented by the same counsel as in Dasilva, and their complaints include false advertising, unfair competition, and warranty claims, and claims under the California Sherman Food, Drug, and Cosmetic Law. According to the complaints, plaintiffs are seeking, among other things, compensatory damages, statutory damages, disgorgement, and attorney fees.
These two cases, which are based on the alleged illegality and misbranding of CBD as a dietary supplement, follow recent lawsuits alleging false advertising based on the quantity of CBD advertised for a given product.
In Gaddis v. Just Brands USA Inc., 0:19-cv-62067, filed on August 16, 2019 in the Southern District of Florida, the plaintiff filed a consumer class action alleging that the defendants repeatedly overstated how much CBD their products contained. The plaintiff alleges that some products contain “only a fraction of the CBD advertised on [d]efendants’ website and on the [p]roducts’ labeling and packaging,” with some products containing “no CBD whatsoever.”
In Ahumada v. Global Widget, 1:19-cv-12005, filed on September 24, 2019 in the District of Massachusetts, the plaintiff filed a consumer class action alleging that “independent laboratory testing” demonstrated that several of the defendant’s products contained “significantly lower levels of CBD than advertised.”
And, in Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017, filed on September 27, 2019 in the Southern District of Florida, the plaintiff filed a consumer class action, alleging that the defendants’ products contained “a significantly lower amount of CBD than represented.”
CBD companies should track this wave of lawsuits closely and look out for similar lawsuits in the months and years to come. To avoid unwanted scrutiny from the federal agencies, CBD companies should also review current labels, advertisements, and webpages, avoid using language guaranteeing results or making unsubstantiated claims to cure specific ailments, and ensure that the stated dosages of CBD in their products are accurate and can be proven. While the costs of replacing the labels and advertisements already in place for CBD products could be significant for companies, so too are the costs of litigation, product seizure, or fines for violating federal regulations.
This article was originally published on Duane Morris LLP’s website in Alerts and Updates.
Seth A. Goldberg (LAW ’99) is a Partner and team lead of the Cannabis industry group in Duane Morris LLP’s Philadelphia office. Mr. Goldberg counsels clients in business and litigation, with a focus on highly regulated industries.