10-Dec-2019 By Elaine Watson
It was only a matter of time before the plaintiff’s bar sought to cash in on the legal uncertainty surrounding cannabidiol (CBD), say attorneys. So how might brands defend themselves against the latest wave of lawsuits, which argue that their products are misbranded and adulterated because CBD is not a legal dietary ingredient?
Speaking to FoodNavigator-USA after putative class action lawsuits were filed against multiple brands including top players* Charlotte’s Web and CV Sciences for selling “illegal CBD products,” attorneys said the first line of defense will likely be to push for stays (ie. put the cases on ice) until the FDA outlines how it will regulate the market.
In its recent announcement, in which it reiterated that CBD is not a legal dietary ingredient in foods and supplements because it was first investigated as a drug, the FDA said it would provide an update on the regulatory path forward “in the coming weeks,” said Brian Sylvester, special counsel at Foley & Lardner LLP, who noted that multiple lawsuits over ‘natural’ claims had stayed on similar grounds (primary jurisdiction).
“Because FDA is actively exploring a possible lawful regulatory pathway for adding CBD to foods and dietary supplements, it is not inconceivable that certain courts would be amenable to staying proceedings to allow the FDA time to develop guidance or new rules to facilitate the lawful marketing of CBD-infused foods and dietary supplements.”
FDA’s position outlined in warning letters is not the same as a formal determination
William Garvin, shareholder at Buchanan Ingersoll & Rooney PC, added that while the FDA has said in warning letters that CBD is not a legal dietary ingredient, defendants could argue that its legal status is not as cut and dried as the lawsuits suggest.
“I think it would also be useful to argue that FDA has actually not taken final agency action on the CBD issue. A Warning Letter is not final agency action that is reviewable by the courts, therefore, in many ways FDA has not yet made a final determination regarding the status of certain CBD products that could be reviewed by a court at this time.
“Without a formal determination by FDA regarding the status of a product, plaintiffs would have a more difficult time arguing that FDA has decided that these products are adulterated or misbranded.”
Low-dose hemp extracts vs high dose isolated CBD
Another line of defense might be to argue that the hemp extracts used in foods and supplements (which contain cannabidiol along with other cannabinoids and terpenes) are legally distinct from the article (isolated CBD) first investigated and later approved as a drug (Epidiolex), an argument made in a motion to dismiss a recent lawsuit vs the makers of Diamond CBD Oil:
“The CBD ingredient [in the Diamond Oil supplements] is a different article than the ingredient investigated and approved as a drug; therefore, the CBD ingredient used by Defendants is not excluded from being legally used as a dietary ingredient in a dietary supplement.”
CV Sciences has not outlined its defense strategy yet, but CEO Joseph Dowling stressed that his firm’s full spectrum hemp extract (which “contains hemp CBD, other cannabinoids, fatty acids, plant sterols, chlorophyll, and naturally occurring vitamin E,”) “qualifies as a dietary ingredient.”
Speaking at the FDA public meeting on CBD in May, SVP scientific and regulatory affairs Doug MacKay added that, “Scientific and legal experts agree that a hemp extract containing a full array of cannabinoids and other plant constituents is a significantly different article than a highly purified CBD.”
However, Greg Kaufman, partner at law firm Eversheds-Sutherland, said this is for the FDA, not the courts, to pinpoint at this stage: “I think a court is unlikely to make a ruling on a motion to dismiss or motion for summary judgment on the distinction between isolate and full/broad spectrum.
“This argument more likely implicates the primary jurisdiction doctrine and an argument that these cases should be stayed pending regulations by the FDA that could affect the claims brought.”
Eric Schnell, co-founder of new cannabis brand mood33, has recently launched a new line of functional beverages infused with a full spectrum hemp extract (MSRP $5.99). The 6% juice products, which do not reference CBD on pack (although the 33mg on the front of the label refers to the cannabidiol content, says Schnell), also contain functional ingredients such as reishi mushroom extract.
Asked about the firm’s branding, messaging, and go-to-market strategy given the regulatory uncertainty over cannabidiol, Schnell told FoodNavigator-USA that he is targeting ‘friendly’ states that have explicitly authorized the sale of hemp-derived CBD products in the initial roll-out phase, had conducted extensive testing to ensure statements on-pack correlated with what’s inside, and makes no claims about the hemp extract.
While Schnell contends that the FDA’s position on CBD (that it was first investigated as a drug so can’t be added to foods and supplements) doesn’t apply to mood33, as it uses a full-spectrum hemp extract, not isolated CBD, he said he was aware of the recent wave of lawsuits, which he described as “frivolous and opportunistic.”
Dealing with such litigation will have to be factored in as a “cost of doing business” in the nascent industry until the FDA provides more clarity about the regulatory path forward, he added.
Other possible defense strategies…
As for the claim that the products targeted in the lawsuits are ‘illegal,’ Kaufman added: “Illegality could be an interesting topic for discovery from the named plaintiffs. If defendants can establish evidence that the named plaintiffs were aware that these products were illegal, as the plaintiffs allege, there could be an assumption of risk defense for the defendants.”
‘Continued inaction by the FDA to regulate this market while policing it through warning letters has contributed to the increase in class action filings’
So what do attorneys make of the timing of the recent round of lawsuits?
While they were filed immediately after FDA sent out 15 warning letters, Kaufman said it has been clear for some time that “a wave of class action litigation was almost inevitable.”
Meanwhile, he said, “It is possible that the continued inaction by the FDA to regulate this market while policing it through warning letters has contributed to the increase in class action filings.”
As companies such as Charlotte’s Web become better capitalized, meanwhile, “they also become more likely targets of class actions,” he observed.
“It is possible that the DMBA ruling[a recent appellate court decision re. the stimulant DMBA which held that adulterated/illegal products are by definition worthless, so you can show economic harm when building a case for damages] is having some influence but I don’t think that explains the uptick in class action filings. There is plenty of precedent in class action cases based on allegations of ‘I didn’t get what I paid for’ economic harm.
“The products at issue in these types of cases were not without value, they were viewed by plaintiffs as being of lesser value.”
Asked about the impact of these lawsuits on the market, he said: “In my opinion, these legal risks were always present… The FDA’s inaction on establishing a regulatory framework for this market guaranteed that this is the case. The more likely near term effects of these lawsuits may be on stock prices of publicly traded CBD-related companies and capital formation in this marketplace.”
‘The counts seeking declaratory relief are somewhat novel and potentially troubling for defendants’
One thing to note in the lawsuits vs Infinite CBD and Elixinol, is the call for a “declaration that Defendant has misrepresented the ingredients and effectiveness of the Products and that its actions are unlawful,” he said.
“I found the counts seeking declaratory relief in the Elixinol and Infinite cases to be somewhat novel and potentially troubling for defendants. It would seem more likely that a plaintiff would seek a declaratory judgment in a state court and then try to use that declaration in a federal class action. Nevertheless, I’ll be interested to see how these federal courts deal with these counts if they ever get that far.”
How should companies in the space respond?
So bigger picture, how worried should firms making products containing cannabidiol be right now?
William Garvin at Buchanan Ingersoll & Rooney PC said: “These lawsuits clearly increase the risk of being sued and thus, companies in this space have to be concerned with both the government and private parties bringing legal actions and should ask their attorneys to help them navigate both of these risks. Without knowing how these lawsuits will be settled, it is hard to say how much downside risks these lawsuits present, but it is something that everyone in the industry should be watching closely, especially companies with deep pockets.
“Companies that practice in this space should be closely monitoring the risks from these lawsuits as well as with the FDA. If the companies feel strongly in the value of CBD to consumers, the best thing that they can do to support this position is gather data to show to regulators that CBD is safe and useful for consumers along with advocating for their position with their congressional representatives to fix the legal issues that stand in the way of the safe use of this ingredient.”
The greatest risk to the cannabis industry is uncertainty
Angela Spivey, partner at law firm Alston & Bird, predicted: “In addition to distinguishing low dose, full spectrum cannabidiol from the high concentrate isolate found in Epidiolex, we anticipate companies will grow increasingly precise with their packaging, labeling, and marketing. In an effort to avoid the FDA spotlight of a warning letter and the often filed civil lawsuit in the wake of such a warning letter, cannabidiol manufacturers should avoid labeling and advertising with health claims and package products so they are not targeted toward children.”
But she added: “The greatest risk to the cannabis industry is uncertainty. By continuing to delay issuing a coordinated regulatory strategy, the FDA effectively invites plaintiff firms to challenge cannabidiol products.”
The deeper your pockets, the bigger the target on your back
So who is most at risk? When it comes to warning letters, the FDA has continued to focus on companies making unauthorized disease claims, but when it comes to lawsuits, plaintiff’s attorneys are considering other factors, said Brian Sylvester at Foley & Lardner:
“As with any sector, highly visible companies with deeper pockets are often subject to heightened scrutiny and potential challenges.”
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