Best Practices

Class Actions Increasingly Targeting Cannabis Companies

Class action claims often make allegations regarding deception over labeling

by Julie Hussey, Barak Cohen, Tommy Tobin

Recent years have seen increased growth for cannabis companies, especially as the market for THC products continues to expand. But this growth brings with it increasing scrutiny of the industry by regulators and private party litigants. Class action litigation risks are a real concern that will only expand as the industry continues to grow. In 2019 and 2020 alone, there were over 100 class action cases filed against cannabis companies, with many focused on issues regarding cannabis labeling, marketing, and disclosures. This article outlines recent cannabis class action trends from across the country.

The Regulatory Landscape

Cannabis companies face complex compliance requirements at the federal and state levels, especially as states may have varying approaches to regulating cannabis products in their jurisdictions. Compliance challenges are exacerbated as the cannabis industry faces constantly evolving rules and regulatory structures. For example, New York only recently announced the formation of its new Office of Cannabis Management, which aims to enforce “a comprehensive regulatory framework” in that state.

At the federal level, agencies, namely the Food and Drug Administration (FDA) and Federal Trade Commission (FTC), have issued public announcements and dozens of warning letters to cannabis companies. Throughout 2020, the FDA raised questions concerning the accuracy of cannabidiol (CBD) content on product labeling and, more generally, concerning the overall safety of CBD, especially for certain populations such as children or pregnant women. The FTC launched “Operation CBDeceit,” a suite of six settlements of enforcement actions regarding the agency’s ongoing efforts to monitor the marketplace for what the agency considers misleading health claims. The FTC noted that cannabis companies, particularly CBD product manufacturers, “that represent expressly or by implication that what they sell can prevent, treat, or cure serious medical conditions will be held to the highest substantiation standards and marketers can expect careful scrutiny of those promises.” Separately, the Securities and Exchange Commission (SEC) has also taken action against cannabis companies and individuals in the industry for suspected securities fraud, including federal lawsuits in California and Illinois alleging inflated stock prices, sale of illusory securities, or conversion of money raised from the sale of unregistered securities.

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