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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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On November 25, 2019, the U.S. Food and Drug Administration (FDA) issued warning letters to 15 companies for illegally selling products that contain cannabidiol (CBD) “in ways” that violate the federal Food, Drug and Cosmetic Act (FDCA). It also issued a <a href="https://www.fda.gov/consumers/consumer-updates/what-you-need-know-and-what-were-working-find-out-about-products-containing-cannabis-or-cannabis" target="_blank" rel="noopener">Consumer Update</a> stating that “CBD has the potential to harm you, and harm can happen even before you become aware of it.” This long-awaited Consumer Update concerning CBD, the FDA’s strongest warning to date, leaves manufacturers, distributors and retailers waiting for general guidance on how to operate in the CBD market while the FDA continues to develop formal guidance for the CBD industry.

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Only days after the warning letters and Consumer Update were issued, class action lawsuits were filed against two prominent CBD industry participants. Despite not receiving FDA warning letters, Charlotte’s Web Holdings, Inc., of Colorado, and CV Sciences, Inc., of California, face class actions alleging the same types of FDCA violations detailed in the Consumer Update and warning letters.

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The plaintiffs’ claims include that the companies violated California consumer protection, false advertising and unfair competition laws, primarily focusing on the companies’ alleged mislabeling of products as “dietary supplements.” The plaintiffs assert that the companies’ product labeling and websites contain misleading claims about the products’ ingredients and effectiveness, and that they had relied on those claims in purchasing the CBD products. The plaintiffs are seeking monetary damages, including potential disgorgement of profits from sales of the CBD products at issue, treble damages and attorneys’ fees.

While receiving an FDA warning letter is certainly serious, a class action lawsuit alleging the same or similar violations outlined in the recently issued warning letters poses a potentially greater challenge to any CBD company. While a company may be able to resolve issues raised in a warning letter by taking appropriate corrective actions, class action claims may survive even after the alleged violations are cured. In addition, actions may be filed in multiple states by the same or different plaintiffs for the same claims, which can result in substantial economic loss and attorneys’ fees.

CBD is an active ingredient derived primarily from the hemp plant, which is a strain of the cannabis plant. Marijuana, also a strain of cannabis, is currently listed as an illegal Schedule I drug under the Controlled Substances Act due to its high potential for abuse attributable to the psychoactive effects of delta-9-tetrahydrocannabinol (THC). There is a significant difference between marijuana and hemp plants with respect to THC concentration. While marijuana can reach THC levels of 30%, THC levels in hemp are typically 0.3% or less.

Legal Status of Hemp and Hemp-Derived CBD

Hemp’s legal status is continually developing and can vary somewhat from state to state, but generally, the 2018 Farm Bill changed certain federal laws and regulations concerning the production and marketing of hemp and hemp-derived products. Those changes included removing hemp from the Controlled Substances Act’s definition of marijuana, which means that hemp and its derivatives, such as CBD, that contain 0.3% or less of THC on a dry-weight basis are no longer considered illegal or controlled substances.

Those in the CBD industry should be aware that marijuana-derived CBD may be available in states that have authorized the sale or use of marijuana. This CBD may contain levels of THC greater than 0.3% – possibly up to 30% – and would not be compliant with the Farm Bill’s provisions. Although the sale of such products may be authorized under a state’s laws, distributors and retailers without the appropriate licensing in the state or those distributing or selling outside the state should be aware that the CBD products they are purchasing, distributing or selling are illegal under federal law because they are derived from marijuana.

FDA’s Regulatory Authority Over Hemp and CBD

Although the 2018 Farm Bill removed hemp that contains 0.3% or less of THC from the definition of marijuana, it still explicitly preserved the FDA’s authority to regulate certain products containing hemp or hemp-derived compounds, including foods and nutritional supplements infused with CBD. FDA regulation does not allow foods or dietary substances containing CBD to be introduced lawfully into commerce absent FDA approval.

This means that not all hemp-derived products containing 0.3% or less of THC are legal, because certain types of products still violate the FDCA. Other than one drug, Epidiolex, which is used to treat two rare, severe forms of epilepsy, the FDA has not approved any CBD products. The approval of CBD in Epidiolex makes it an active ingredient in a drug product, thereby providing a basis for further regulation and restriction, including the prohibition on CBD in food. While the FDA continues to evaluate CBD and develop formal industry guidance and regulations on CBD and hemp-derived products, industry participants remain unsure of how best to comply.

In its Consumer Update, the FDA states that it is “concerned that people may mistakenly believe that trying CBD ‘can’t hurt’” and that CBD products, many of which are illegal, have been approved by the FDA as being safe. It also warns that “[c]onsumers should be aware of the potential risks associated with using CBD products,” which include liver injury, interactions with other medications and male reproductive toxicity, as well as potential side effects, including changes in alertness, gastrointestinal distress and changes in mood. The FDA has repeatedly acknowledged its limited research and information on CBD and primarily bases these potential risks and adverse effects on its review and approval of Epidiolex, which contains highly concentrated marijuana-derived CBD. The Consumer Update also cautions that there have been reports of CBD products containing unsafe levels of contaminants, including pesticides and heavy metals.

Based upon the many unanswered questions and lack of scientific information about the safety of CBD in foods, the FDA has also stated that it cannot conclude that CBD is “generally recognized as safe” for use in any human or animal foods.

The FDA is actively investigating potential safety risks associated with CBD including:

The FDA also expresses concern about the promotion of CBD products with unproven medical claims because such “false claims associated with CBD products may lead consumers to put off getting important medical care, such as proper diagnosis, treatment, and supportive care.” In addition, it warns about the quality of some CBD products because tests for CBD content have revealed that some products do not contain the levels of CBD claimed on packaging and some may contain unsafe levels of contaminants.

The FDA routinely warns companies about selling CBD products that claim to prevent, treat or cure serious diseases such as cancer, psychiatric disorders, diabetes and Alzheimer’s disease because under the FDCA, “any product intended to treat a disease or otherwise have a therapeutic or medical use, and any product (other than a food) that is intended to affect the structure or function of the body of humans or animals, is a drug.” This has been, and likely will continue to be, the FDA’s primary focus in regulating the CBD market until it issues more formal guidance and regulations. For that reason, CBD companies must ensure that they understand the current legal landscape for their products.

The FDA stated in its November 25 warning letters that the targeted companies are selling CBD products “in ways” that violate the FDCA because they “are using product webpages, online stores and social media to market CBD products in interstate commerce in ways that violate the FD&amp;C Act, including marketing CBD products to treat diseases or for other therapeutic uses for humans and/or animals.” The FDA issued the letters because it identified many legal and health concerns, including:

For parties engaged in manufacturing and/or distributing CBD products that could run afoul of certain federal laws and regulations, the recent class action lawsuits and FDA warning letters sent to CBD companies should serve as a strong reminder of the importance of compliance. Understanding relevant current laws and regulations, such as the FDA’s packaging, medical claims and drug regulations and the Federal Trade Commission’s regulations on deceptive and unfair trade practices, and how to lawfully navigate them can help ensure compliance and avoid becoming the target of a consumer class action lawsuit for violating those or other consumer protection laws. Many CBD manufacturers, distributors and retailers, including many of those that received the November 25 FDA warning letters, believe they are complying and acting lawfully under the 2018 Farm Bill that legalized hemp – until they receive a warning letter.

The lawsuits against Charlotte’s Web and CV Sciences are likely only the beginning of a trend of similar actions that will be filed across the country relying on various federal and state consumer protection and false advertising laws. Indeed, one of the class action plaintiffs has already filed a second class action lawsuit against another CBD company citing the same allegations. As every state has different consumer protection laws and damages available under them, companies could be facing varying exposure from state to state as well as multiple class actions arising under different state laws at the same time. It is critical that CBD companies proactively seek legal advice to ensure compliance with the appropriate federal and state laws to reduce potential risk, rather than wait until they receive a warning from the FDA or, possibly worse, become the target of a class action lawsuit.

As the rules governing the cannabis industry continue to evolve, including FDA, trademark and banking laws and regulations, all stakeholders, including business owners, law firms and investors, must stay abreast of the rapidly changing legal landscape to maximize business growth opportunities, ensure proper legal and regulatory compliance, and avoid having their businesses go up in smoke.

Roger H. Bora 937.443.6817 <a href="mailto:Roger.Bora@ThompsonHine.com">Roger.Bora@ThompsonHine.com</a>

Joe Smith 202.263.4145 <a href="mailto:Joe.Smith@ThompsonHine.com">Joe.Smith@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.

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CBD Companies Face Class Action Suits After FDA Issues Warnings About CBD Products

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