Awaiting FDA Rulemaking, Courts Are Pressing Pause on CBD Class Actions

By David Biderman, Barak Cohen, Tommy Tobin

The cannabidiol (CBD) industry has seen a new wave of consumer class actions. The industry is poised to see further cases, especially as the market for CBD-containing products grows. At the same time, federal courts are increasingly placing these class actions on pause, staying them to allow the U.S. Food and Drug Administration (FDA) to issue rulemaking to clarify uniform, national standards for CBD product labeling. Already, three class actions have been stayed pending forthcoming agency action.

Background

CBD consumer litigation is on the rise following a November uptick in warning letters to companies for health-related claims. These consumer suits try to take advantage of these letters and challenge a number of claims, some of which are the subject of the letters and others are new. One set of these cases asserts that the amount of CBD on the label fails to match the product’s composition. Other class actions allege that CBD, especially in food and beverage products, is illegal to sell—regardless of any claim.

Meanwhile, the FDA is actively working to create regulatory clarity for the CBD marketplace. In announcing warning letters and updates to its CBD Consumer Update in November 2019, the FDA noted that the agency was continuing “to explore potential pathways for various types of CBD products to be lawfully marketed” and expected that it would “provide an update on its progress regarding the agency’s approach to these products in the coming weeks.”

Furthermore, in March 2020, the agency announced it recognized the “significant public interest in CBD,” and that it was moving forward in evaluating a potential risk-based enforcement strategy to “further the goals of protecting the public and providing more clarity to industry and the public” while also taking “potential steps to establish a clear regulatory pathway.” The same month, the FDA issued a report to Congress in which it stated that the agency was “taking a variety of concerted actions to advance its continued evaluation of potential regulatory pathways for FDA-regulated consumer products containing or derived from cannabis (Cannabis sativa L.) and its components, including [CBD].”

Acknowledging that CBD products had experienced a “vast proliferation” that had outstripped the agency’s limited enforcement resources, the FDA stated in the March 2020 report that the agency was taking additional steps to advance its work “on the fastest possible timeframe while also ensuring that [its] policies are grounded in sound data and in accordance with … [its] mission to protect and promote the public health.” These steps include:

• Evaluating issuance of a risk-based enforcement policy that would “provide greater transparency and clarity regarding factors FDA intends to take into account in prioritizing enforcement decisions”;
• Reopening the 2019 public meeting docket, to be open indefinitely, as a means for receiving new data and other information about CBD;
• Engaging with federal, state, local, tribal, and international regulatory partners, including a planned call with state public health officials, regarding CBD safety surveillance to occur later this year;
• Conducting product sampling, focusing on the extent of CBD product misbranding or adulteration;
• Assessing the marketing of “full spectrum” and “broad spectrum” hemp extracts; and
• Conducting further research to generate additional data for agency review.

Now in July 2020, the FDA released another report to Congress, which expressed its concerns about product labeling. While the agency admitted that the small sample sizes used in its testing to date are not generalizable, the FDA’s results concluded that several products had labeling that did not match CBD content claims, a concern for regulators and industry leaders alike. Also in July, the FDA submitted draft enforcement guidance to the White House regarding CBD products, indicating that the agency intends to produce industry guardrails at some undetermined time in the near future.

Pausing Litigation for Future Rulemaking

For the ever-burgeoning CBD product market, the lack of uniform national standards has led to substantial confusion and a maze of overlapping (and sometimes conflicting) state laws. While the industry waits on the FDA to potentially craft such national standards in the first instance, plaintiffs are pushing forward with requests to federal courts to define rules for the CBD marketplace.

In an attempt to allow the FDA to develop a uniform set of standards, at least three federal cases have stayed proceedings pending FDA action. See Snyder v. Green Roads of Florida LLC (S.D. Fla. 2020); Colette v. CV Sciences Inc. (N.D. Cal 2020);Glass v. Global Widget LLC (E.D. Cal. June 15, 2020). The stays are based on the doctrine of primary jurisdiction, or a judicial determination that the court should defer to agency expertise and allow the agency to develop regulations beforethe court is asked to interpret the existing law.

These cases relied on the need for consistent, uniform guidance at the federal level, especially as the agency had not fully addressed its remaining open questions over CBD product safety. These courts also noted that the FDA had taken an active interest in regulating CBD manufacturing and marketing, which was evident from its public statements.

This approach makes intuitive sense. Judges apply law to facts, and it is helpful when the law—as interpreted via federal regulation—is clear. This is especially appealing when there is a strong chance that the forthcoming rulemaking will address the controversy before the court, without the court having to wade into murky waters.

Conclusion

CBD companies facing consumer class action suits regarding product labeling have a reasonable chance of success in staying the case on primary jurisdiction grounds while the FDA continues to contemplate its regulatory action. But this doctrine relies on litigants effectively linking the anticipated regulatory action with the issues involved in the case. At least one court has found that allegations that CBD content was inaccurately labeled was notsubject to primary jurisdiction. Potter v. Potnetwork Holdings Inc. (S.D. Fla. March 30, 2020). That court reasoned whatever rulemaking the FDA might promulgate, the CBD content would need to be accurately labeled.

A well-worn maxim in consumer product labeling, embodied in FDA regulations for food and supplements, is to be truthful and not misleading. In the absence of clear federal guidance, CBD products should substantiate labeling claims to the extent possible, especially those concerning CBD content. That way, CBD companies can mitigate potential litigation risk and prepare for compliance with the FDA’s anticipated federal standards. If brought into such litigation, the first goal is to use an informed knowledge of the FDA’s CBD regulatory actions to seek a stay in the case. If a stay does not succeed, be prepared to defend the accuracy of your claims against some aggressive plaintiff’s counsel.

About The Authors

Barak Cohen ([email protected]) is a partner in Perkins Coie’s White Collar & Investigations practice, lead for commercial litigation in the firm’s Washington, D.C., office, and chair of the firm’s Cannabis industry group, which he helped establish. He represents companies in high-stakes investigations and litigation, with a special focus on the cannabis industry.

Tommy Tobin ([email protected]) is an associate in Perkins Coie’s Seattle office, where he focuses on complex commercial litigation and class action matters involving statutory, constitutional and regulatory issues in a range of industries, including food and beverage, healthcare, and pharmaceuticals.