By Richard Fama and Kristin Keehan Consumer class action lawsuits have been the proverbial thorn in the side of food, beverage and dietary supplement... With Storm Clouds Brewing, Marketers of CBD Products Can Seek Shelter in the Lessons Learned by Food, Beverage and Dietary Supplement Manufacturers

By Richard Fama and Kristin Keehan

Consumer class action lawsuits have been the proverbial thorn in the side of food, beverage and dietary supplement manufacturers for years. Rather than focusing on the integrity of the products themselves, these lawsuits typically challenge representations on the products’ labels and advertising. Whether asserting claims that potato chips aren’t “natural” because they’re cooked in genetically modified oil or dog treats manufactured in Wisconsin aren’t “Made-in-the-USA” because they contain citric acid from China, these lawsuits remain prevalent. Food, beverage and dietary supplement manufacturers, however, have become more adept at modifying their marketing practices to increase the challenges consumers and their lawyers face in pursuing these types of claims. And although the Plaintiff’s bar has responded by bringing more complex and nuanced claims, there’s no doubt that the lawyers who bring these lawsuits have been looking for seemingly easier targets. Enter CBD.

With high consumer interest and demand and little to no regulatory control, the CBD marketplace has flourished in ways not seen since the gold rush. Yet there’s an ominous black cloud lurking in the background. Perhaps the biggest storm cloud comes in the form of several class action lawsuits recently brought against CBD manufacturers over allegedly false and deceptive claims made on their products’ packaging and advertising.  For instance, JustBrands is currently facing at least two proposed putative class action lawsuits stemming from the marketing and advertising of its JustCBD brand products. In one of those lawsuits, the plaintiff, Trevor Darrow, alleges that JustCBD falsely labeled and marketed its gummy products as containing “NO THC.”[1]Plaintiff claims to have relied upon this misrepresentation, consumed the product, and consequently failed an employment drug test resulting in his termination. In another lawsuit, the plaintiff, Jesse Gaddis, alleges that independent testing of several JustCBD products revealed that they do not contain the claimed amount of CBD.[2]  Yet JustBrands is not alone. Both Diamond CBD and Hemp Bombs are also facing consumer class actions alleging that their products didn’t contain the claimed amount of CBD.[3]The plaintiffs in these lawsuits allege that independent testing revealed that the products contained significantly lower amounts of CBD than advertised.

While class action lawsuits may be new to CBD manufacturers, in many ways the claims raised in them are remarkably similar to those asserted in the countless lawsuits that have plagued the food, beverage and dietary supplement industries for years—i.e. that their products’ packaging and/or advertising is false and deceptive. Unfortunately, eliminating all consumer class action lawsuits is like avoiding paying taxes—a virtual impossibility. Yet as food, beverage and dietary supplement manufacturers have learned, there are ways to mitigate against becoming a defendant in one of these lawsuits, the most significant of which can be explained in three words:  Substantiation, substantiation and substantiation.  It’s critical for sellers of all products—including CBD-containing products—to be able to substantiate each and every claim on their products’ packaging and advertising. Under the Federal Trade Commission Act (“FTCA”), all advertising, including product labels, must be truthful and non-deceptive and advertisers must have evidence to support their claims. 

The Federal Trade Commission (“FTC”), the federal agency charged with enforcing the FTCA and preventing business practices that are anticompetitive or deceptive or unfair to consumers, typically requires marketers to support product claims and advertising with “competent and reliable scientific evidence.”  Outdated or debunked studies generally will not suffice. Furthermore, in order to determine whether a product claim is false, deceptive or misleading, FTC and most courts view product claims and advertising through the lens of the “reasonable consumer.”  As explained by FTC, “[it] looks at what an ad says or shows from the viewpoint of the audience the advertiser is trying to reach—not from the perspective of an FTC lawyer. If an ad is aimed at teenagers, the FTC tries to look at the ad as a teenager would, not as a parent would.”[4]

Yet substantiation of product claims on a one-time basis is often insufficient. Indeed, the substantiation analysis should not be static.  Rather, all claims—including but not limited to those related to potency, purity and effect of the product on the body and mind—must be constantly re-evaluated as suppliers and manufacturing processes change. What might be a truthful and non-deceptive claim at one point in time may become false and misleading shortly thereafter based upon nothing more than a change in the source of an ingredient or a small change in package size. 

Also, it’s critical to note that even a fully substantiated claim can be deemed deceptive when considered within the overall context of the marketing or advertising campaign.   For example, Millercoors, LLC recently sued Anheuser-Busch Companies, LLC over claims made by Anheuser-Busch that Miller Lite and Coors Lite beers are made with corn syrup.[5]Corn syrup is used by some brewers during the fermentation process. However, during that process, the corn syrup is broken down and consumed by yeast so that none of it remains in the final product. Although Anheuser-Busch’s claims that Miller Lite and Coors Lite beers are made with corn syrup are true and therefore capable of being substantiated, a court found that Anheuser-Busch’s claims were nevertheless deceptive because they gave the net impression that Miller Lite and Coors Lite beers contain corn syrup.  Lesson learned:  Context is key. 

Finally, as widely reported, the Food and Drug Administration (“FDA”) has sent warning letters to several manufacturers of CBD products—primarily over unapproved “health claims.”[6]  At FDA’s public hearing regarding CBD, acting Commissioner Dr. Sharpless emphasized that FDA’s biggest concern is products claiming to prevent, diagnose, mitigate, treat or cure diseases, such as cancer, in the absence of requisite approvals. It is FDA’s belief that such unapproved health claims may encourage patients and consumers to use CBD-containing products to treat serious and potentially fatal diseases at the expense of more traditional and approved therapies. It is therefore not surprising that FDA has been particularly aggressive in policing against unapproved health claims and issuing warning letters to those companies that make them.  Such warning letters not only portend FDA’s wrath but, also, bring unwanted and negative attention to the companies who receive them.  To be sure, there have been many instances where FDA warning letters have prompted consumer class action lawsuits in a matter of days of issuance.  

Yet consumer class action lawsuits based upon an unapproved health claim are not always preceded by FDA warning letters. Indeed, there’s little doubt that litigious consumers and the plaintiffs’ bar—motivated by lucrative class action settlements—are constantly combing store shelves and the internet to find products that bear claims that they believe are false and deceptive and, as a result, may give rise to a consumer class action lawsuit. 

Avoidance of health claims is good policy given FDA’s position and expressed concern that they may encourage patients and consumers to forgo traditional and approved therapies for serious illness and diseases.  However, such claims should also be avoided because they may not be capable of substantiation with “competent and reliable scientific evidence” as is required by FTC.

CBD has been a boon to consumers and marketers alike.  In this highly competitive marketplace, it will undoubtedly become increasingly enticing for sellers to make bold marketing claims in order to differentiate their products from those of their competitors.  To mitigate against the risk of consumer class action lawsuits, however, sellers would be well-advised to take a deep breath, step back, think like a reasonable consumer—i.e. their target market—and carefully evaluate each and every claim they make on their products’ packaging, keeping in mind that “packaging” extends to their products’ advertising, sales material and websites.  Given the costs and expenses associated with class action litigation, a more careful and thoughtful approach will likely have a positive net effect on your long-term bottom line.  Now get out there, consult competent legal counsel with experience in the cannabis industry, and substantiate, substantiate and substantiate. 

Richard Fama is a Member of Cozen O’Connor and is located in its New York Office.  Richard focuses his practice on the defense of consumer class action litigation and advising food, beverage, dietary supplement and cannabis companies on marketing, advertising and regulatory issues. 

Kristin Keehan is an Associate of Cozen O’Connor and is also located in its New York Office.  Kristin also focuses her practice on consumer class action litigation and advising clients on marketing, advertising and regulatory issues. 

[1]Darrow v. JustBrands USA, Inc.,(N.D. IL) (1:19-cv-07079)

[2]Gaddis v. JustBrands USA, Inc, et al., (S.D. FL) (0:19-cv-62067)

[3]Potter v. Potnetwork Holdings, Inc., et al.,(S.D. FL.) (1:19-cv-24017) and Ahumada v. Global Widget LLC d/b/a Hemp Bombs,(D. MA) (1:19-cv-12005)

[4]FTC Fact Sheet, It’s the law, https://www.consumer.ftc.gov/sites/default/files/games/off-site/youarehere/pages/pdf/FTC-Ad-Marketing_The-Law.pdf

[5]Millercoors, LLC v. Anheuser-Busch Companies, LLC, (W.D. WI)(3:19-cv-00218)

[6]Per FDA, “[h]ealth claims describe a relationship between a food substance (a food, food component, or dietary supplement ingredient), and reduced risk of a disease or health-related condition.” https://www.fda.gov/food/food-labeling-nutrition/label-claims-conventional-foods-and-dietary-supplements

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