Staying on the right side of the law requires proactive measures

Since news first broke over the summer of public health concerns around products from Juul Labs Inc. and other e-cigarette makers, companies selling vaping devices and cartridges have been bracing for an onslaught of lawsuits.

And with good reason. In July, a Connecticut man sued Juul, claiming its product caused him to suffer a massive stroke. In August, a lawsuit filed in U.S. District Court in Indianapolis alleged that the candy flavors of Juul products entice children to use them. An Ohio mother sued Juul that same month over her twin teenage daughters’ mood swings and migraines, which she believes were caused by vaping. And courts across the country are starting to see class actions in the marijuana and CBD space around mislabeling, failed workplace drug screenings and even violations of securities law when investors accuse companies of making misleading statements to inflate their market price. Regardless of the merits of the cases, there’s no question filings like these are on the rise.

While it’s important to have the best possible legal team in place to defend your company should the worst come to pass, it’s far cheaper and easier to avoid litigation in the first place. As health departments across the country continue working to pinpoint the ingredients causing vaping-related illnesses, and as the FDA reconsiders its regulatory approach to these products, it may seem like there are too many unknowns to make a cohesive plan. But companies can take proactive steps to protect themselves from costly litigation even as the exact nature of the landscape they will face is still unfolding.

– Make quality control a top priority: This goes without saying, but the current climate leaves no room for error when it comes to knowing exactly what is in your products. If you control your manufacturing process, get well acquainted with its strengths as well as any vulnerabilities that could become problems for your company down the road. Investigate the suppliers of the raw materials in your products to be sure you are getting precisely what you think you are and that they do not contain any unsafe additives. Remember that trouble can come from a single defective component or from an unexpected reaction between components. It is imperative that you have confidence in every ingredient contained in your products, as well as confidence in the precision of your production process.

– Review contracts with third parties: The agreements you make with suppliers, distributors and other vendors in the manufacturing and sales process are crucial to safeguarding your products and the future of your company. When these third parties make changes to their own processes — for example, altering the formulation of an ingredient or deriving it in a new way — your contract should spell out how you will be informed of this change and your options for seeking alternatives.

Indemnification provisions, another important aspect of these contracts, spell out who will bear the cost of defending a legal claim. Strong indemnification provisions will ensure that, for example, if you are sued over the safety of a product, the supplier of the faulty ingredient will bear at least some of the cost too. Remember, however, that any third parties who do not sign the agreement will not be bound by it. Do you have informal relationships with any partners that should be codified in writing under the guidance of an attorney? This protection serves everyone’s interests because when lawsuits are filed, litigants go after as many entities as possible and look for the deepest pockets they can find.

Assess marketing and advertising practices: Even if your company has a strong handle on product safety and solid legal protections in place, it still could show up on the radar of regulators and class action attorneys if you aren’t careful how you promote your products. While satisfied customers may believe that a vaping device helped them quit smoking or resolved another health issue, by law you may not make any claims on your product’s packaging or in your advertising about health effects. This includes claims that are merely implied (for example, by a clever product name that is too similar to the name of a medication) as well as a “failure to warn” users of potential side effects that may result from using the product as intended.

And think carefully about whether your ads appeal to children or could be perceived as doing so by regulators — or an opportunistic plaintiff — who are eager to ensure that adults are the only people using these products.

A careless approach to marketing could also get you into trouble with state prosecutors who enforce consumer protection laws. In early November, for example, prosecutors in suburban Philadelphia sued Juul Labs Inc. for marketing its products to children. At issue is the company’s reliance on social media and “glamorous models” to make the products appealing to children. Juul’s brand has been irreparably tarnished by lawsuits like these, even if the company is ultimately vindicated in court.

When it comes to the regulatory environment companies can expect in 2020 and beyond, the only thing we know for sure is that many questions remain unanswered. But that should not stop companies from taking steps to put themselves on solid footing. Protect your company, employees, partners and the future performance of your products by establishing best practices for doing business in the brave new world of cannabis and electronic nicotine delivery systems.

 

Bryna Dahlin is a partner at Benesch Chicago and advises cannabis companies of all sizes on regulatory compliance, risk avoidance, company formation and more. She serves as an adjunct professor at Chicago-Kent College of Law, where she taught Illinois’ first law course on cannabis, and has lectured across the country on cannabis law.

Comment

Comments are closed.

The Marijuana Venture interview

With cannabis sales in Nevada continuing to rise, the market…

Read More >

Long lines greet legal weed in Michigan

At its longest point, the wait time outside Arbors Wellness…

Read More >

Memo to would-be cannabis entrepreneurs: Be diligent

As marijuana and CBD hit the mainstream and more jurisdictions…

Read More >
Website Design