Fast Growing CBD Market Continues To Create Regulatory Challenges And Litigation Opportunity – Food, Drugs, Healthcare, Life Sciences

CBD litigation in 2020 reinforced a several things about the CBD
(and other hemp derivatives) industry, including:

• companies involved in the CBD industry must carefully navigate
  the regulatory and litigation landscape;




• it’s not just the brand owners who are the target of
  claims, but also raw material suppliers, manufacturers,
  distributors and retailers;




• ensure that your product contains what you say it contains and
  in the amount you say it contains; and




• perhaps most importantly, carefully scrutinize your claims, as
  false, misleading, or egregious claims present the quickest and
  most direct path to government scrutiny and class action
  claims.

CBD and CBD-containing products are ubiquitous, yet there is
significant misunderstanding about their regulatory status. CBD is
cannabidiol, one of more than a hundred different active compounds
that can be derived from the hemp plant. The 2018 Farm Bill changed
the legal status of hemp, separating it from the Schedule 1
substance known as “marihuana” under the Controlled
Substances Act. The effect was to decriminalize the plant that
meets the definition of hemp, as well as its derivatives. But, as
the Food and Drug Administration (FDA) was quick to point out just
hours after the President signed the bill, FDA’s requirements
relating to food, beverages, dietary supplements, cosmetics and
other products regulated by the federal Food Drug and Cosmetic Act
(FD&C Act) were not modified.

From a regulatory perspective, 2020 was “more of the
same” from FDA. FDA continues to seek public input on the
regulation of CBD, but has not taken any formal action regarding
regulatory clearance for use as an ingredient in FDA-regulated
products. FDA has, however, continued to issue Warning Letters
companies making egregious claims or distributing contaminated
product. FDA issued 21 Warning Letters, more than half of which
were focused on impermissible COVID-19 claims. Other claims
included those relating to cancer, pain relief, arthritis, artery
blockage, heart disease, immune disorders, diabetes/blood sugar
control, stress and anxiety, ADHD, depression, and more, and FDA
continues to assert that use of CBD in foods or beverages
constitutes impermissible addition of a drug to such products, in
violation of the FD&C Act. FDA considers company websites,
social media posts (including retweets), marketing materials and
more to assess the claims made by a company.

The Federal Trade Commission (FTC) dove deeper into the CBD
marketing claims action this year as well. It too issued Warning
Letters to companies marketing CBD to address COVID-19, and in
December, announced the “first law enforcement crackdown on
deceptive claims” in the CBD market, part of its initiative
entitled “Operation CBDeceit.” Six companies, each of
which was making false and misleading health claims, were the
target of FTC enforcement actions that resulted in, among other
things, monetary penalties of up to $85,000 each. One item to note
in particular was that one of the Operation CBDeceit enforcement
actions also involved claims relating to cannabigerol (CBG), a
different cannabinoid compound derived from hemp. The market is
starting to see an increasing number of claims relating to these
other cannabinoids, and regulatory and litigation scrutiny of these
other derivatives is not expected to be any different from CBD. Of
course, FDA and FTC Warning Letters and enforcement can be an
invitation to private parties to initiate litigation. 2020 saw more
than twenty new putative claims action claims filed against CBD
companies in California, Florida, Illinois and Massachusetts, and
substantive rulings in many of the cases filed toward the end of
2019. These cases center around consumer protection claims,
alleging liability for actions such as selling product with less
than the labeled CBD content, misleading the consumer about the
legality of the product, and making false or misleading claims
regarding the benefits of CBD.

These claims are generally met with motions to dismiss that
pursue preemption, primary jurisdiction or standing arguments.
Primary jurisdiction has largely been the most successful of these,
leading multiple courts to stay the litigation while FDA continues
to pursue rulemaking. See, e.g., Snyder v. Green Roads of Florida
LLC, Case No. 0:19-cv-62342 (S.D.Fla.). Multiple courts have noted
that “FDA is under considerable pressure from Congress and the
industry to expedite the publication of regulations and policy
guidance regarding CBD products.” See, e.g., Colette et al v.
CV Sciences, Inc., 2:19-cv-10227 (D.D.Cal.)(referencing Snyder).
However, these primary jurisdiction arguments are not always
successful, as one defendant in a Florida action discovered. In
that case, the judge ruled that no matter the outcome of FDA
rulemaking, it would not be expected to allow actual CBD content to
differ from labeled CBD content, as the suit claimed. See Potter v.
PotNetwork Holdings Inc. et al., Case No 1:19-cv-24017 (S.D.Fla.).
Nonetheless, we cannot expect stays to last indefinitely,
especially if FDA is not seen as making any progress. The
experience with proposed FDA rulemaking in the “naturals”
space will likely serve as a good guide here.

Originally published by Bryan Cave Leighton Paisner LLP, 13,
April 2021

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