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Marijuana Industry News September 21, 2019 MJ Shareholders
As the cannabis industry continues to expand, attacks have begun on direct marketing (text, call, etc.) campaigns undertaken by cannabis-related businesses. Cannabis advertising is heavily regulated, so many cannabis companies rely on direct marketing to consumers—often in the form of text messaging. But technology has outpaced the federal statutes regulating telemarketing, leaving marketers uncertain as to what is and is not permitted under existing laws.
This uncertainty potentially leaves consumer-facing cannabis companies open to attack by resourceful plaintiff’s attorneys claiming violations of the Telephone Consumer Protection Act (TCPA) and the Americans with Disabilities Act (ADA).
The TCPA was enacted in 1991 to combat a rising tide of invasive and unwanted telemarketing calls and faxes. The Act limits the use of automatic dialing systems, prerecorded voice messages and fax machines and has been expanded to cover calls to cell phones and text messaging, neither of which were prevalent when the statute was enacted. It was intended generally to restrict automated or prerecorded (robo) calls unless the receiving party consents to receive the call or when the call is made for emergency purposes.
The TCPA distinguishes between marketing and non-marketing calls, requiring different types of consent based on the purpose of the communication. A marketing call includes an advertisement or other communication intended to encourage a purchase or the like. (Although payment reminders, confirmations, informational messages and service calls are not considered telemarketing, if a dual-purpose call includes a marketing intent, the call is treated as a marketing call.)
Transparency is Key
Marketers can ensure TCPA compliance by obtaining appropriate consent from the called party. For non-marketing calls or texts to a cell phone, implied consent is sufficient under the TCPA. Implied consent recognizes that if a customer provides their cell phone number, then they expect to be called or texted at that number. For marketing calls, the TCPA requires “written consent.” “Written consent” does not necessarily mean “in writing”; “written consent” could include verbal consent on a recorded line or otherwise captured by electronic means. The FCC has clarified that consumers may revoke TCPA consent at any time through any reasonable means.
The TCPA imposes strict liability based on the party who actually receives the call, not the intended recipient. This feature of the Act causes a trap for the unwary. Even if a company has express consent from the intended recipient, if the phone number provided to the company is inaccurate and the called party differs from the intended recipient, then the call violates the TCPA despite the fact that the intended recipient gave consent. The Act’s strict liability is particularly problematic with respect to reassigned cell phone numbers. The FCC estimates that as many as 100,000 cell phone numbers are reassigned every day, and each reassigned number represents a possible TCPA violation for marketers.
Because the regulatory regimes surrounding these statutes have remained stagnant in the face of remarkable technological growth, considerable uncertainty remains with respect to how these statutes apply to today’s direct marketing technologies.
Unsurprisingly, TCPA litigation (and class actions in particular), has skyrocketed in recent years as plaintiff’s attorneys realized the statute’s potency. TCPA litigation abounds because the Act allows damages of $500 for each violation and $1,500 if the conduct is deemed willful. Because there is no cap on damages, the potential liability in these cases can be enormous.
Technology Outpaces Regulations—Again
The Americans with Disabilities Act, a wide-ranging civil rights law intended to protect against discrimination based on disability, was enacted in 1990. Title III of the ADA prohibits discrimination “on the basis of a disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who . . . operates a place of public accommodation.”
Public accommodations include private establishments such as restaurants, hotels, theaters, and stadiums—areas that the ADA was originally intended to address. Like the TCPA, technology has outpaced the regulatory regime of the ADA and clear guidance on how the ADA applies in the internet age, specifically as it relates to web site accessibility, is lacking.
Websites and other technological spaces, which did not exist as we now know them when the ADA was first enacted, have been interpreted to be places of public accommodation under certain circumstances. Hundreds of class actions lawsuits have been filed alleging violations of the ADA based on companies’ large and small alleged failure to maintain ADA compliant websites that are accessible to the blind and visually impaired. Unfortunately, neither the Department of Justice, the agency responsible for enforcing the ADA, nor the federal courts have illuminated a consistent standard for determining ADA liability in online spaces. The Ninth and Eleventh Circuits have provided that a website is a place of public accommodation only where there is a nexus between the website and the service of a physical place of public accommodation—like a business’s commercial web presence.
Under this standard, online-only businesses such as eBay or Facebook would not be considered places of public accommodation, but a website that allows ordering goods for in-store pickup (say, at a licensed cannabis dispensary) would likely have a sufficient nexus to physical stores to be subject to the ADA.
The ADA permits litigants to pursue injunctive relief and attorney’s fees and costs; it does not include compensatory damages or civil penalties similar to the TCPA. Although the ADA does not provide a mechanism for monetary damages, plaintiff’s counsel often includes claims under a state mini-ADA or local human rights statute that allows recovery of monetary damages.
Cannabis Business Owners Should Be Wary
With the rapid growth of legal cannabis sales, plaintiffs have begun to use the TCPA to target cannabis-related business. In June 2019, a group of plaintiffs filed a class action lawsuit in federal court against Baker Technologies and its parent company Tilt Holdings Inc. alleging violations of the TCPA and California’s Unfair Competition Law. Tilt Holdings specializes in cannabis technology, and its subsidiary Baker Technologies provides customer relationship management services to retail stores, including online ordering, customer loyalty, messaging and analytics.
Specifically, the lawsuit alleges that Baker collected cell phone numbers, provided them to its cannabis dispensary clients and facilitated telemarketing text messages to those mobile numbers without first obtaining the necessary consent. The defendants have promised a vigorous defense of the lawsuit and maintain that messages are only sent to customers who have voluntarily signed up to receive messages at dispensaries and that those customers may opt-out at any time—in full compliance with the TCPA. What will happen in this litigation remains to be seen.
When the TCPA was enacted, text messaging did not exist. Now, an estimated 6 billion text messages are sent daily. A shop owner is able to clearly ascertain whether her physical store location is handicap-accessible as required by the ADA, but companies struggle with how to make their website ADA compliant in the absence of clear federal guidance on the issue. Because the regulatory regimes surrounding these statutes have remained stagnant in the face of remarkable technological growth, considerable uncertainty remains with respect to how these statutes apply to today’s direct marketing technologies.
Administrative agencies generally responsible for enforcement of these statutes—the FCC and FTC with respect to the TCPA and the DOJ with respect to the ADA—have largely ceded enforcement responsibility to plaintiff’s attorneys. With possible damages of up to $1,500 per unwanted call or text, the potential liability in a TCPA class action—and corresponding attorney fee award to class counsel—is tremendous. Enterprising plaintiff’s attorneys look for violations wherever they can find them, and the blossoming cannabis industry may provide fertile hunting grounds.
In light of advertising restrictions, many cannabis companies prefer to communicate directly with customers, often collecting cell phone numbers in connection with loyalty and rewards programs, which are then used for direct marketing purposes. Given this prevalence of direct marketing to cell phones using SMS text messaging, we anticipate seeing an increase in TCPA cases against cannabis industry participants. Cannabis industry participants and related businesses should review their direct marketing procedures and ensure that they secure proper consent and comply with the TCPA. For example, industry participants should check the FCC’s Do Not Call Registry and remove any numbers on that list from their call lists. Marketers also need to ensure that they respect any opt-out request received. Industry participants should also review their website configuration and attempt to ensure ADA compliance, particularly where the website allows for direct sales or allows a customer to make a purchase for in-store pickup.
Clarity in the areas of TCPA and ADA compliance is not likely any time soon, so it is imperative that cannabis-industry participants that market directly to consumers through messaging and/or websites take proactive steps to minimize the risk of unwanted legal actions.
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