By Ian A. Stewart and Neil Willner
Cannabidiol (CBD) products are being marketed, advertised and labeled in a manner that is giving rise to substantial regulatory exposure and civil tort liability. Setting aside the FDA’s current prohibition on CBD in food and supplements, companies that decide to market and sell these products must pay close attention to product labels and product marketing statements to ensure compliance with state law. There is a trend toward new lawsuits being filed against CBD companies based on mislabeling and alleged deceptive marketing practices, including financially ruinous consumer class actions and competitor suits that allege false advertising or unfair competition under state consumer protection statutes.
State-Specific CBD Label and Warning Requirements
Good CBD risk management requires thoughtful attention to label and warning requirements on a state-by-state basis. Though certain CBD labels may be compliant with the requirements of multiple states, there is no CBD product that is currently labeled in full compliance with the requirements of all states that presently allow the sale of ingestible CBD products.
Several states have regulations expressly permitting the sale of CBD in foods and supplements with specific label information and warning requirements. For example,
California recently was on the verge of passing CBD legislation under Assembly Bill 228, which would have expressly permitted the sale of hemp-derived CBD products. The California Senate Appropriations Committee, however, has placed a hold on the measure to allow for additional time to address several concerns. Those concerns include passing the bill prior to potential FDA guidelines on CBD safety, dosing and testing that may be released this fall, andthe potential impact on California’s cannabis-derived CBD market, including how retailers will separate and distinguish hemp-derived CBD from cannabis-derived CBD products. Many are hopeful that these concerns will be addressed in time for California’s governor to sign the bill by early 2020.
It is reasonable to expect more states to pass similarly permissive legislation as they revamp their hemp programs and submit them to the USDA for approval. Though CBD legalization at the state level does not preclude FDA enforcement or civil liability based on violation of federal law, state legislation provides CBD defendants in civil court with an affirmative defense to unlawful adulterant allegations under state law.
Is a Nutritional Facts Panel or Supplement Panel Required on CBD Labels?
When labeling a CBD product, manufacturers should determine whether the product requires a nutritional facts panel or a supplements fact panel. Unfortunately, many companies forgo the appropriate panel in a misguided effort to avoid being classified as a food or supplement. That gives rise to potential claims of mislabeling and adulteration in states where ingestible CBD products are expressly permitted.
Dietary supplements are defined as products that are intended to supplement the diet and are not to be represented as conventional foods or as the sole item of a meal. These include vitamins, minerals, herbs or other botanicals, amino acids, or a substance to supplement the diet by increasing the total dietary intake. Should a CBD product fall into this category, five statements are required on the label: (1) The statement of identity, (2) the net quantity of contents statement, (3) the supplement labeling, (4) the ingredient list, and (5) the name and place of business of the manufacturer, packeror distributor.
Nutritional labels, on the other hand, are required for most conventional foods and beverages, includingbreads, cereals, canned and frozen foods, snacks, desserts, drinks, etc.
CBD Consumer Confusion
Various hemp-derived CBD products have important distinctions that often are lost on the average consumer. These products can be described as “full-spectrum hemp,” “broad-spectrum hemp,” “hemp extract,” “CBD isolate” or simply “CBD.” Many CBD products alsoare advertised as containing no THC. It is important for consumers to understand the significant differences in these products.
Isolate is CBD in its purest form and generally refers to a pure crystalline powder that typically contains more than 95% CBD. To produce CBD isolate, a manufacturer undertakes a process to isolate only the CBD molecule, stripping out all remaining plant material. The resulting powder then is infused into foods, beverages, dietary supplements, topicals, cosmetics and other products. CBD isolate is the active ingredient in Epidiolex®, the only FDA-approved drug that contains CBD.
Unlike CBD isolate, a full-spectrum hemp product contains the full assortment of cannabinoids that are naturally present in the hemp plant, including THC (though at a level that should not exceed 0.3% concentration). Broad-spectrum hemp is similar to full-spectrum hemp with one important difference: broad-spectrum products contain the full assortment of cannabinoids except THC, which is extracted from the final product. Products that are vaguely labeled as “hemp extract” are likely full-spectrum but could be broad spectrum.
Broad-spectrum hemp products and CBD isolate products often are labeled as “No THC” or “THC free.” Consumer and competitor lawsuits have resulted from this practice based on two allegations. First, a product labeled as containing no THC may in fact have trace levels of THC that are below the detection limit of the specific test used on that batch of product. In addition, many drug test protocols include “cannabinoids” in addition to THC. Consumers who have failed drug tests have alleged that the “THC free” description is deceptive in that it suggests that use of the product by the consumer will not result in a failed drug test. This is one of the allegations made in the case of Thurston v.Koi CBD, filed in the Los Angeles County Superior Court. That case seeks to certify a class action against Koi CBD on this basis, among other allegations involving unsupported health and disease claims.
In another case, Horn v. Medical Marijuana, Inc. et al., the plaintiff tested positive for THC in a random drug screening administered by his employer after using the defendants’ Dixie CBD Hemp Oil Dew Drops. The U.S.District Court for the Western District of New York ruled in April 2019 that the plaintiff’s complaint adequately pled that the defendants’“THC free” statements were false and intentionally deceptive.
Consumer confusion also hasbeen exacerbated by numerous reports of CBD labels that understate the amount of CBD actually contained in the product. This allegation is made in the recent case of Gladdis v. Just Brands USA, Inc. et al., filed in the U.S.District Court for the Southern District of Florida.
Efficacy of CBD Isolate vs Full Spectrum Hemp Extract
CBD is known to have a synergistic therapeutic effect by working in tandem with THC. Both CBD and THC are neurotransmitters that bind in different ways upon the same receptors in the nervous system. CBD modulates the receptor only in the presence of THC or another cannabinoid that also binds to the receptor. This “entourage effect” means that pure CBD isolate without THC is thought to be less effective therapeutically than CBD in the presence of THC. Cannabis users have long observed that high concentrations of CBD within a cannabis strain have a modulating effect on the strain’s intoxicating potency, even for strains with high levels of THC. This phenomenon has now been clinically confirmed by researchers at University College London, who recently used cutting-edge fMRI technology to demonstrate that high-CBD cannabis strains result in less impairment to brain function than strains with lower CBD concentrations.
To date, we have seen no lawsuits that attempt to use this distinction between the perceived efficacy of CBD isolate versus “whole plant” CBD as a basis for liability. As the science progresses and consumers become more savvy, however, CBD companies should be wary of how different CBD products are marketed with respect to potency and efficacy.
CBD is “Psychoactive”
CBD labeling and marketing often claims that CBD is “non-psychoactive.” The frequency with which this statement has been repeated by the media and others rises with the popularity of CBD. Most who use the term “non-psychoactive” likely mean to say that CBD is “not intoxicating,” which is certainly true. But CBD is psychoactive.
A chemical is considered psychoactive when it acts primarily on the central nervous system and alters brain function, resulting in temporary changes in perception, mood, consciousness or behavior.CBD does not have the intoxicating effect of THC and does not result in obvious cognitive alterations or withdrawal effects. CBD does, however, cross the blood-brain barrier and it directly affects the central nervous system with resulting changes in mood and perception. It has been shown to have moderating effects on anxiety, psychosis, depression, pain, appetite, memory, seizures and other brain activity. It works in tandem with THC and other cannabinoids that act on the central nervous system. CBD does not result in euphoria or intoxication, but to say that it is “non-psychoactive” is technically wrong and misleading to the patient or consumer.
It is essential for every CBD company to have a solid grasp of both CBD regulatory risks and state unfair competition laws to safely compete in the new CBD marketplace and to avoid unwittingly being named as a defendant in an expensive and potentially company-ending lawsuit. Any company that decides to market and sell CBD products should follow federal and state law on product labeling. This necessarily involves a state-by-state strategy. Use of a “one size fits all” CBD label is a bad idea because no single label is compliant with the different requirements of all states that presently allow the sale of ingestible CBD products. A CBD companyalso shouldbe prepared to respond quickly to changes in state CBD laws, which may require label changes or withdrawal from the state market on short notice.
It goes without saying that health and disease claims must be avoided. CBD companies that decided to run this risk are paying the price. Statements that may be considered structure or function claims should have a reasonable scientific basis. Many CBD companies avoid structure/function claims by using vague descriptors such as “relief,” “soothe” and “calm.” “THC free” or similar statements should be used with caution and be based on reliable certificates of analysis.
Consumer education should not be neglected. Most consumers have little understanding of the important distinctions between CBD products, such as the difference between a CBD isolate product and a full-spectrum CBD product. Companies are rightly reluctant to include information that would be helpful to consumers for fear of running afoul of U.S.food and drug laws. Recommended dosage information for different uses of CBD, for example, may result in the company being accused of illegally marketing the product as a drug.
In this volatile sector, CBD risk management starts and ends with the product. Testing, uniformity, quality control and supply chain management all are important facets,but ensuring proper labeling and marketing is the most challenging risk management hurdle for any CBD company.
Ian is a partner in the Los Angeles office of Wilson Elser. He is co-founder and chair of the Wilson Elser Cannabis Law practice and uses his 20 years of legal experience to help clients navigate the legalities around cannabis and hemp. Ian works with licensed cannabis operators to comply with their obligations under the law and to develop risk management best practices. He also regularly consults with insurance companies to assist with cannabis-related underwriting practices and the development of new policy forms.
He is currently Chair of the National Cannabis Industry Association’s Finance and Insurance Committee, as well as Vice-Chair of the California Cannabis Industry Association’s Insurance Committee. Ian received his B.A. from Washington University in St. Louis, and his JD from St. Louis University. He has been with Wilson Elser for the past 18 years.
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