Cannabis companies need to be aware of telemarketing laws
As the trend in legalizing both recreational and medicinal marijuana continues to sweep the nation, enterprising plaintiffs’ attorneys are looking for new ways to make money off the budding industry.
One way attorneys are looking to profit is by filing (or threatening to file) class action lawsuits under the federal Telephone Consumer Protection Act (TCPA), a law enacted in 1991 to target spam telemarketers, which may apply to marketing programs that use text messaging.
With statutory penalties up to $1,500 per unsolicited call or text, the TCPA can have a tangible and lasting impact on newer technologies and industries that may be unaware of its requirements. While its rules can be complicated, the short of it is that the TCPA makes it unlawful to make unsolicited telephone calls using an autodialer — equipment capable of making calls en masse without human intervention. The law originally applied to true autodialing technology that generated and called numbers on its own. Over time, plaintiffs’ lawyers lobbied courts and the Federal Communications Commission (FCC) — the agency charged with overseeing and implementing the TCPA — to apply the law to text messages and texting technology. The TCPA has a special application to marketing calls and text messages, meaning any message encouraging the purchase of a good or service. Marketing messages require prior express consent in writing, with specific disclosures mandated by the FCC. The TCPA allows recipients of those communications to file suit and provides for statutory damages of $500 per violation, which can be tripled.
Thus, the TCPA is not only tricky, but punitive. Many class action cases have settled for seven, eight and even nine figures. The extent to which the TCPA applies to the technology used to send text messages is a debated topic; the FCC has created confusion in this regard, and a number of appellate courts have hinted recently that modern-day texting technology may not be covered. Regardless, even the prospect of several million dollars in exposure has led many companies to agree to blockbuster settlements.
Startups are frequent targets for TCPA plaintiffs, as newer companies are unlikely to be aware of the law, usually do not have access to corporate counsel and are apt to use text message programs. Startups in the legal marijuana field — both on the technology side (mobile applications) and retail stores — have become prime targets. For example, the marijuana delivery app Eaze was recently sued over text messages relating to deals to its subscribers. Marijuana retailers have also come under fire for messages relating to loyalty programs.
These lawsuits hope to play on both a lack of awareness about the TCPA in the industry and general controversy over marijuana to force early settlements. The lawsuit against Eaze included consumer complaints about receiving purportedly unsolicited advertisements “for drugs.” The confluence of these factors raise the risk profile for the legal marijuana industry.
There are two key elements of risk under the TCPA that the legal marijuana industry should be acutely aware of: consent and reassigned or recycled numbers.
As to consent, because the overwhelming majority (indeed, likely all) of messages sent by dispensaries to their customers will be marketing in some form or fashion, the requirements for consent to receive marketing messages are particularly important. To obtain valid consent to send marketing messages, the consumer must be presented with a “clear and conspicuous” disclaimer that (a) states their agreement to receive marketing messages via autodialer; (b) states that consent to receive such messages is not a condition of purchase; (c) identifies the number at which the consumer consents to receive messages; and (d) is “signed” by the consumer. Although convoluted, obtaining the requisite level of consent can be done in a way that is not nearly as intrusive and burdensome as it appears. For example, a “signature” need not be literally in writing; it can be clicking a checkbox or a “submit” button. Where the disclaimer is placed in relation to a customer sign-up or payment station depends largely on how the customer signs up or pays at a given location (or online, for that matter).
There is flexibility, but the disclaimer is key. Simply having a customer’s phone number does not create consent to send a marketing message. Startups often make the crucial mistake of using old customer lists, phone numbers obtained at trade shows or lists obtained from third parties. That is a significant risk. Even if it means starting a customer text message list from scratch, it may be well worth it. And, on a related note, “opt outs” must be honored immediately. As soon as a customer texts “STOP” or the like, that customer must be suppressed from any marketing list.
As it relates to reassigned or recycled numbers, consumers often switch numbers, stop paying bills, etc., and the cell phone provider assigns that number to a new consumer. This turnover of numbers has created significant TCPA risk because most courts have treated number reassignment as breaking consent. In other words, the new phone subscriber did not provide consent and thus can sue over any message, even if the old subscriber did consent. There are a variety of services that can check a customer list for number reassignments, and it is crucial that this procedure be implemented periodically to keep a customer list current and avoid lawsuits.
There is seldom a booming industry without plaintiffs’ lawyers trailing closely behind, making it critical to implement a TCPA compliance program before sending any messages to your customer base. While there is significant risk of TCPA litigation in the legal marijuana industry, the risk can be minimized with a few simple compliance measures. Other laws and regulations, like the Federal Trade Commission’s Telemarketing Sales Rule and the FCC’s do-not-call list regulations, also cover various aspects of consumer outreach and are worth discussing with your counsel.
Finally, it is worth noting that email is not governed by the TCPA, so while it is subject to a few caveats under the federal email statute (CAN-SPAM), email is generally the less risky method of communication.
David Almeida is a partner at Benesch, a business law firm with offices in Delaware, Illinois, Ohio, New Jersey and Shanghai, China. He is chairman of the firm’s TCPA Defense and Retail Practices. A recognized expert in consumer fraud and privacy class action defense, he works with clients to develop legally compliant direct marketing campaigns, including advice on compliance with federal and state trade regulations, the CAN-SPAM Act, the Telemarketing Sales Rule and “do-not-call” registries.
Mark Eisen is an associate in Benesch’s Litigation Practice. He focuses his practice on defending companies against class and individual actions brought under state and federal privacy and consumer protection statutes, including the TCPA and various consumer privacy and unfair business practices laws. He is well-versed in data breach and data privacy litigation.