Scrutinizing claims for truth in advertising

Class action against Charlotte’s Web highlights concerns

An era of consumer lawsuits alleging false advertising and unfair competition against producers of cannabis-derived products has begun.

As the Food and Drug Administration, Federal Trade Commission and consumers increase scrutiny on marketing claims, consumer class actions threaten to derail growing consumer confidence and the normalization of cannabis products.

Among those lawsuits making headlines is a consumer class action brought last December against Charlotte’s Web Holdings Inc., the maker of Charlotte’s Web, a hemp cultivar rich in CBD. Charlotte’s Web has been known to successfully treat certain seizure disorders, including those suffered by Charlotte Figi, the cultivar’s namesake, a now 12-year-old girl (who graced the cover of High Times magazine this past November). For years, Charlotte’s Web has been credited with saving lives and popularizing and normalizing CBD. Charlotte’s Web was the first U.S.-based hemp company to go public on the Toronto Stock Exchange and the first cannabis company to secure a plant variety patent. But its high visibility and “iconic” status has left it vulnerable to attack.

Against Charlotte’s Web, consumers have alleged, among other things, that positioning and branding its CBD tinctures as “dietary supplements” violates the federal Food, Drug and Cosmetic Act, causing a violation of California state laws. According to the FDA, it is a violation of the Food, Drug and Cosmetic Act to sell CBD as a dietary supplement.

Litigation involving false advertising may be brought through the FTC, which enforces false advertising laws on behalf of consumers. Consumers also have the ability to file private civil suits under state false advertising and unfair competition laws or federal law, including the Lanham Act, which prohibits false advertising that “misrepresents the nature, characteristics, qualities, or geographic origin” of goods or services. As cannabis and hemp businesses compete for market share, even mere allegations of false advertising may cause irreparable reputational damage.

Before analyzing whether a “claim” may be appropriately substantiated and, thus, not “unfair,” “false” or “deceptive,” when distinguishing themselves from competitors, operators must first be attuned to what constitutes a “claim.” While there are many different types of “claims,” common types of marketing claims made by cannabis operators include: health claims, comparative claims and environmental claims. Claims may appear on labels, which are typically affixed to the product, but may also include any written, printed or graphic materials that accompany the product at any point in the distribution process.

Health claims, which show that a product may reduce the risk of a disease or condition, require a higher level of substantiation than other types of claims — a policy responsive to the billions of dollars that Americans spend every year on foods, supplements, weight-loss programs and other goods and services designed to improve one’s health. Health claims must be supported with competent and reliable scientific data, which includes an assortment of tests, analyses, research studies and other evidence, including at least one randomized, well-controlled, human clinical trial. No CBD company, except for GW Pharmaceuticals, in the context of Epidiolex for the specific treatment of certain seizure disorders, has completed this undertaking. Thus, no CBD company, except for GW Pharmaceuticals, may make a health claim.

Comparative claims are assertions that a product or service is superior to those offered by its competitors. These include head-to-head comparisons between similar features of competing products or absolute claims, such as the “best tasting” product or “fastest” onset of wellness attributes. Comparisons must be truthful and free of misleading omissions, and absolute claims should be supported by product performance testing and consumer behavior surveys. Comparative claims may become inaccurate over time, even if they were accurate when made. For that reason, extreme caution should be exercised when making a comparative claim. Production runs should be kept low to avoid recalls and rebrands.

An environmental claim relates to the marketing of a product as environmentally friendly in some regard. Such claims amid recognition of the climate crisis are gaining popularity. Between the high energy demands of indoor cannabis production facilities and required use of bulky, child-resistant packaging, the cannabis industry has been maligned for alleged environmental waste. Notably, cannabis regulatory agencies in emerging markets, such as New Jersey and Massachusetts, now require, as a condition for licensure, applicants to submit a plan for environmental conservation.

Any company proffering environmental claims must be fully versed in the “Green Guides” published by the FTC. Among other things, the Green Guides address specific claimed environmental attributes of products, including, for instance, claims that products are “biodegradable,” “compostable,” “sustainable,” “non-toxic,” “recyclable,” “made with renewable energy” or similar sentiments, as well as general claims, such as “earth-friendly” and “eco-friendly.” They also establish basic principles for truth, clarity, substantiation and qualification for all environmental claims.

Proper claims scrutiny will ultimately protect against legal exposure, as well as the cannabis industry’s integrity.

 

Lauren Rudick represents investors and startup organizations in all aspects of business and intellectual property law, specializing in cannabis, media and technology. Her law firm, Hiller, PC (www.hillerpc.com), is a boutique, full-service firm with a track record for success in various practice areas including cannabis law, land use and zoning, disability insurance law and business and corporate law.

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