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With Storm Clouds Brewing, Marketers of CBD Products Can Seek Shelter in the Lessons Learned by Food, Beverage and Dietary Supplement Manufacturers

By Richard Fama and Kristin Keehan

Consumer class action lawsuits have been the proverbial thorn in the side of food, beverage and dietary supplement manufacturers for years. Rather than focusing on the integrity of the products themselves, these lawsuits typically challenge representations on the products’ labels and advertising. Whether asserting claims that potato chips aren’t “natural” because they’re cooked in genetically modified oil or dog treats manufactured in Wisconsin aren’t “Made-in-the-USA” because they contain citric acid from China, these lawsuits remain prevalent. Food, beverage and dietary supplement manufacturers, however, have become more adept at modifying their marketing practices to increase the challenges consumers and their lawyers face in pursuing these types of claims. And although the Plaintiff’s bar has responded by bringing more complex and nuanced claims, there’s no doubt that the lawyers who bring these lawsuits have been looking for seemingly easier targets. Enter CBD.

With high consumer interest and demand and little to no regulatory control, the CBD marketplace has flourished in ways not seen since the gold rush. Yet there’s an ominous black cloud lurking in the background. Perhaps the biggest storm cloud comes in the form of several class action lawsuits recently brought against CBD manufacturers over allegedly false and deceptive claims made on their products’ packaging and advertising.  For instance, JustBrands is currently facing at least two proposed putative class action lawsuits stemming from the marketing and advertising of its JustCBD brand products. In one of those lawsuits, the plaintiff, Trevor Darrow, alleges that JustCBD falsely labeled and marketed its gummy products as containing “NO THC.”[1]Plaintiff claims to have relied upon this misrepresentation, consumed the product, and consequently failed an employment drug test resulting in his termination. In another lawsuit, the plaintiff, Jesse Gaddis, alleges that independent testing of several JustCBD products revealed that they do not contain the claimed amount of CBD.[2]  Yet JustBrands is not alone. Both Diamond CBD and Hemp Bombs are also facing consumer class actions alleging that their products didn’t contain the claimed amount of CBD.[3]The plaintiffs in these lawsuits allege that independent testing revealed that the products contained significantly lower amounts of CBD than advertised.

While class action lawsuits may be new to CBD manufacturers, in many ways the claims raised in them are remarkably similar to those asserted in the countless lawsuits that have plagued the food, beverage and dietary supplement industries for years—i.e. that their products’ packaging and/or advertising is false and deceptive. Unfortunately, eliminating all consumer class action lawsuits is like avoiding paying taxes—a virtual impossibility. Yet as food, beverage and dietary supplement manufacturers have learned, there are ways to mitigate against becoming a defendant in one of these lawsuits, the most significant of which can be explained in three words:  Substantiation, substantiation and substantiation.  It’s critical for sellers of all products—including CBD-containing products—to be able to substantiate each and every claim on their products’ packaging and advertising. Under the Federal Trade Commission Act (“FTCA”), all advertising, including product labels, must be truthful and non-deceptive and advertisers must have evidence to support their claims. 

The Federal Trade Commission (“FTC”), the federal agency charged with enforcing the FTCA and preventing business practices that are anticompetitive or deceptive or unfair to consumers, typically requires marketers to support product claims and advertising with “competent and reliable scientific evidence.”  Outdated or debunked studies generally will not suffice. Furthermore, in order to determine whether a product claim is false, deceptive or misleading, FTC and most courts view product claims and advertising through the lens of the “reasonable consumer.”  As explained by FTC, “[it] looks at what an ad says or shows from the viewpoint of the audience the advertiser is trying to reach—not from the perspective of an FTC lawyer. If an ad is aimed at teenagers, the FTC tries to look at the ad as a teenager would, not as a parent would.”[4]

Yet substantiation of product claims on a one-time basis is often insufficient. Indeed, the substantiation analysis should not be static.  Rather, all claims—including but not limited to those related to potency, purity and effect of the product on the body and mind—must be constantly re-evaluated as suppliers and manufacturing processes change. What might be a truthful and non-deceptive claim at one point in time may become false and misleading shortly thereafter based upon nothing more than a change in the source of an ingredient or a small change in package size. 

Also, it’s critical to note that even a fully substantiated claim can be deemed deceptive when considered within the overall context of the marketing or advertising campaign.   For example, Millercoors, LLC recently sued Anheuser-Busch Companies, LLC over claims made by Anheuser-Busch that Miller Lite and Coors Lite beers are made with corn syrup.[5]Corn syrup is used by some brewers during the fermentation process. However, during that process, the corn syrup is broken down and consumed by yeast so that none of it remains in the final product. Although Anheuser-Busch’s claims that Miller Lite and Coors Lite beers are made with corn syrup are true and therefore capable of being substantiated, a court found that Anheuser-Busch’s claims were nevertheless deceptive because they gave the net impression that Miller Lite and Coors Lite beers contain corn syrup.  Lesson learned:  Context is key. 

Finally, as widely reported, the Food and Drug Administration (“FDA”) has sent warning letters to several manufacturers of CBD products—primarily over unapproved “health claims.”[6]  At FDA’s public hearing regarding CBD, acting Commissioner Dr. Sharpless emphasized that FDA’s biggest concern is products claiming to prevent, diagnose, mitigate, treat or cure diseases, such as cancer, in the absence of requisite approvals. It is FDA’s belief that such unapproved health claims may encourage patients and consumers to use CBD-containing products to treat serious and potentially fatal diseases at the expense of more traditional and approved therapies. It is therefore not surprising that FDA has been particularly aggressive in policing against unapproved health claims and issuing warning letters to those companies that make them.  Such warning letters not only portend FDA’s wrath but, also, bring unwanted and negative attention to the companies who receive them.  To be sure, there have been many instances where FDA warning letters have prompted consumer class action lawsuits in a matter of days of issuance.  

Yet consumer class action lawsuits based upon an unapproved health claim are not always preceded by FDA warning letters. Indeed, there’s little doubt that litigious consumers and the plaintiffs’ bar—motivated by lucrative class action settlements—are constantly combing store shelves and the internet to find products that bear claims that they believe are false and deceptive and, as a result, may give rise to a consumer class action lawsuit. 

Avoidance of health claims is good policy given FDA’s position and expressed concern that they may encourage patients and consumers to forgo traditional and approved therapies for serious illness and diseases.  However, such claims should also be avoided because they may not be capable of substantiation with “competent and reliable scientific evidence” as is required by FTC.

CBD has been a boon to consumers and marketers alike.  In this highly competitive marketplace, it will undoubtedly become increasingly enticing for sellers to make bold marketing claims in order to differentiate their products from those of their competitors.  To mitigate against the risk of consumer class action lawsuits, however, sellers would be well-advised to take a deep breath, step back, think like a reasonable consumer—i.e. their target market—and carefully evaluate each and every claim they make on their products’ packaging, keeping in mind that “packaging” extends to their products’ advertising, sales material and websites.  Given the costs and expenses associated with class action litigation, a more careful and thoughtful approach will likely have a positive net effect on your long-term bottom line.  Now get out there, consult competent legal counsel with experience in the cannabis industry, and substantiate, substantiate and substantiate. 

Richard Fama is a Member of Cozen O’Connor and is located in its New York Office.  Richard focuses his practice on the defense of consumer class action litigation and advising food, beverage, dietary supplement and cannabis companies on marketing, advertising and regulatory issues. 

Kristin Keehan is an Associate of Cozen O’Connor and is also located in its New York Office.  Kristin also focuses her practice on consumer class action litigation and advising clients on marketing, advertising and regulatory issues. 

 

[1]Darrow v. JustBrands USA, Inc.,(N.D. IL) (1:19-cv-07079)

[2]Gaddis v. JustBrands USA, Inc, et al., (S.D. FL) (0:19-cv-62067)

[3]Potter v. Potnetwork Holdings, Inc., et al.,(S.D. FL.) (1:19-cv-24017) and Ahumada v. Global Widget LLC d/b/a Hemp Bombs,(D. MA) (1:19-cv-12005)

[4]FTC Fact Sheet, It’s the law, https://www.consumer.ftc.gov/sites/default/files/games/off-site/youarehere/pages/pdf/FTC-Ad-Marketing_The-Law.pdf

[5]Millercoors, LLC v. Anheuser-Busch Companies, LLC, (W.D. WI)(3:19-cv-00218)

[6]Per FDA, “[h]ealth claims describe a relationship between a food substance (a food, food component, or dietary supplement ingredient), and reduced risk of a disease or health-related condition.” https://www.fda.gov/food/food-labeling-nutrition/label-claims-conventional-foods-and-dietary-supplements

Rich Fama

Rich Fama

Rich Fama focuses his practice on class action and complex litigation in the areas of toxic tort, products liability, food and liquor liability, construction defect, and mass tort actions, and has decades of experience litigating in New York’s state and federal courts.

Fama possesses a particular knowledge of handling cases involving catastrophic injuries and damages. He defended life sciences corporations in the PPA and pedicle screw litigations. He is currently lead defense counsel on several well-publicized and high-exposure cases involving the release of toxic substances into the environment, including mold, lead, asbestos, methanol, benzene, and other chemicals and contaminates. He also represents product manufacturers in class action matters involving alleged product defects and mislabeling, including alleged Federal Trade Commission violations regarding “Made in the U.S.A.” claims.  Richard also serves as consulting counsel to various entities for claims arising out of alleged exposure to diacetyl at microwave popcorn manufacturing facilities.

Richard has a construction background, having worked in several large architectural and engineering consulting firms prior to attending law school. That background, combined with his pursuit of coursework in both architecture and engineering, has proven invaluable to his handling of construction defect and related matters.

Fama earned his law degree from Hofstra University School of Law in 1993 and his undergraduate degree from New York Institute of Technology in 1987.

Kristin Keehan concentrates her practice on class action and complex litigation and regulatory compliance.

The focus of her litigation practice is in the areas of construction and labor law, toxic tort, products liability, and food liability. She has experience handling all phases of litigation, from initiation of suit to jury selection.

Kristin has significant experience providing regulatory advice and conducting regulatory reviews for major food, beverage and over-the-counter drug companies. Kristin also assists with regulatory compliance reviews for marketers of medical marijuana and CBD products.

She has successfully defended clients in construction and labor law litigation and defeated claims based on alleged violations of Labor Law § 240(1). Kristin works with clients of major construction companies to address safety concerns and best practices for accident prevention and response.

Kristin graduated magna cum laude from Albany Law School, where she was a senior editor with the Albany Government Law Review and an associate editor for the Center for Judicial Process.

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