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INSIGHT: A New Class—The CBD Lawsuit Floodgates Are Opening

Dec. 18, 2019 - Bloomberg Law

 Cannabidiol vapor products are displayed during the Cannabis World Congress & Business Expo.
Cannabidiol vapor products are displayed during the Cannabis World Congress & Business Expo.

A flurry of recent class action lawsuits against manufacturers of CBD products involving a range of claims—from marketing to stock pricing to CBD content—should put the industry on alert. Perkins Coie attorneys look at the recent spate of class actions, what the FDA is doing, and offer mitigating steps for CBD suppliers and manufacturers.

New litigation has sounded the alarm within the cannabidiol (CBD) industry regarding consumer class actions. In the past several weeks, class action lawsuits have targeted at least five manufacturers of CBD products, including some of the industry’s most established businesses.

The message is clear for suppliers of CBD products: additional class action litigation cases are expected, and companies should proactively mitigate potential litigation risks.

Class actions are litigation vehicles that, among other things, can enable consumers to combine their individual allegations into significant class-wide claims for substantial economic recovery. In the recent class action suits, plaintiffs attempt to represent every American consumer who had ever purchased the affected companies’ products.

In recent months, CBD companies have seen suits filed on topics ranging from a shareholder-derivative action following a stock drop to allegations that certain CBD products did not contain the stated amount of CBD.

FDA Warning Letters Playing a Role

On Nov. 25, the Food and Drug Administration signaled a more aggressive stance against CBD. As part of the agency’s newly-articulated position, the FDA issued over a dozen warning letters to manufacturers and declared that adding CBD to food and nutritional supplement products is illegal under federal law.

Just what the agency will actually do regarding enforcement actions against CBD product manufacturers, beyond merely sending letters, remains unclear, especially given the FDA’s inactivity in the past. What is certain though is that many private parties are incorporating the FDA’s public pronouncements into a new wave of class action lawsuits.

One law firm in California launched at least five class action lawsuits on the heels of the FDA’s aggressive verbiage against CBD products. The cases allege that the manufacturers’ CBD products violate state law rules protecting consumers because the products are “illegal to sell” per the FDA’s recent edict.

The complaints filed to date are strikingly similar, albeit with company names substituted. But the real impact of these cases goes beyond the four corners of the complaints themselves; the class action allegations indicate that private plaintiffs (and plaintiffs’ law firms) are actively targeting the CBD industry. Copycat cases are sure to follow.

Private Party Litigation Aimed at Anything with CBD

Until now, many of the warning letters and threatened enforcement actions have focused on CBD products with outlandish and wholly unsubstantiated claims, such as that CBD could cure everything from the common cold to cancer.

What has changed with the new suits is that any CBD manufacturer is at risk for a class action case simply because the products contain CBD. Companies might see potential class action cases parroting the FDA’s public announcement, especially as the FDA’s public pronouncements form the basis for the current class action complaints.

Companies supplying CBD products to the market should recognize the real risk of a class action lawsuit and take steps to mitigate risks even before a suit is filed.

For example, companies might consider reviewing their products’ stated claims and purported benefits as well as assessing how their products’ health claims can best be supported using scientific evidence.

Other steps might include actively monitoring and participating in FDA’s evolving regulatory process regarding CBD. The agency held a public hearing for stakeholders in May. In the coming weeks, the FDA is set to issue further updates as it explores “potential pathways for various types of CBD products to be lawfully marketed.”

Any formal FDA regulation would require notice-and-comment rulemaking, providing CBD companies additional opportunity to voice their concerns and shape the agency’s path forward.

The CBD industry is rapidly developing, and so too is the regulatory structure surrounding it. Private party litigation, particularly from putative class action plaintiffs, is likely to increase over the next year as plaintiffs—and their advocates—further seize upon the FDA’s public announcements amidst ambiguity around applicable statutes and rules governing CBD products.

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