In the latest narrative of adapt or die, the cannabis industry is being battered with Telephone Consumer Protection Act (TCPA) lawsuits. Due to advertising restrictions, many cannabis companies are unintentionally running afoul of the TCPA. With court judgments for such violations ranging from $500 to $1,500 per unsolicited phone call or text message, the amounts at stake can escalate quickly. A 2018 case against Eaze Solutions, for example, saw the court reject a $3.49 million settlement offer because it felt the amount wasn’t enough under the TCPA.
Given what is at stake, it is imperative for cannabis companies to change their advertising practices immediately. Fortunately, this is a relatively simple process.
What is the TCPA?
Congress passed the TCPA in 1991 to address the growing problem of unsolicited telemarketing and protect consumer privacy. The legislation governs all forms of unsolicited marketing and advertising completed via phone calls and text messages, including the use of autodialers. Under the TCPA, companies must follow strict rules or potentially face lawsuits.
Telemarketing in cannabis
Cannabis companies are more likely to use telemarketing because they are prohibited from running other types of advertising. Google, Facebook and Instagram, for example, each bar advertising for cannabis. Given the generally younger demographics of cannabis consumers, the sensible alternative advertising tools are direct marketing and telemarketing via phone calls and text messages.
Unfortunately, many cannabis companies are not following the TCPA in their advertising practices, and there has been a significant rise in lawsuits as a result. This is affecting businesses of all sizes across the country. Here are just a few examples of recent cases in the larger cannabis-related jurisdictions:
– Curaleaf, the self-proclaimed world’s largest cannabis company, was sued in federal court in Manhattan in August 2020. The plaintiffs alleged that Curaleaf violated the TCPA when it “bombard[ed] consumers’ mobile phones with non-emergency advertising and marketing text messages without prior express written consent.”
– A proposed class action was filed in Colorado federal court in late September 2020 against five cannabis companies: Dixie Brands, Euflora, Mile High Green Cross, Native Roots and Starbuds. The complaint alleges these businesses used a third-party contractor to spam customers with unwanted texts, using numbers that were collected during online or in-person sales. Consumers claim they did not consent to advertising or marketing text messages.
– A Las Vegas dispensary operator, Euphoria Wellness, LLC, and a California-based dispensary operator, Hydroponics, Inc., were sued in different California federal courts in May 2020 for allegedly sending unwanted robocalls and texts to consumers.
Industry players are also being sued in less cannabis-centric states. For example, both Le Battle Creek, Inc., a Michigan-based dispensary, and Gage Cannabis were separately sued in Michigan federal court for sending unsolicited telemarketing messages to mobile phones without prior express written consent. Desert Lake Group, LLC was sued in the Northern District of Georgia in February 2020. The case was dismissed without prejudice and appears to have settled.
Complicating matters is the fact that the U.S. Supreme Court has agreed to hear a case involving the TCPA. In Facebook v. Duguid, parties are challenging a federal court’s interpretation of the word “autodialer,” with arguments scheduled for December 2020 and a decision expected by next summer. Some of the cases listed above have been stayed pending the outcome of this appeal, while others continue.
How to avoid TCPA violations
There is little question that cannabis companies must adopt a more sophisticated advertising game to avoid TCPA liability. While the pending Supreme Court case may alter best practices slightly, no business should wait, as the stakes are simply too high. To ensure TCPA compliance, all cannabis companies must make the following changes to their telemarketing practices:
– Obtain express written consent from every customer/potential customer for any telemarketing communication. A communication is considered telemarketing if it contains any form of advertising or encouragement to the consumer to make a purchase. As the permissible time frame to bring TCPA lawsuits is four years, companies should keep all written consent forms for at least four years.
– Comply with do-not-call lists. In addition to the National Do Not Call Registry, 12 states have their own do-not-call lists (Colorado, Florida, Indiana, Louisiana, Massachusetts, Mississippi, Missouri, Oklahoma, Pennsylvania, Tennessee, Texas and Wyoming).
– Use a system that manually dials phone numbers and does not use automated or pre-recorded messages. As the TCPA strictly regulates autodialers, a manual system is the most foolproof way to avoid TCPA liability.
– Train all personnel on these practices to ensure TCPA compliance.
These steps are not difficult to implement and can be done quickly. They are also the only way that cannabis companies can ensure they will not have to pay out millions of dollars due to consumer lawsuits filed over TCPA violations.