This week’s warning letters by the FTC coincide with unsubstantiated reports about a possible link between cannabis vaping and health conditions, in particular lung illnesses.

The past week has shown the challenges that the cannabis industry supply chain—manufacturers, processors, distributors and dispensaries—faces, as regulators target claims relating to the health benefits of CBD and media outlets report, without any scientific evidence, that cannabis vaping may be linked to lung illnesses, and, as of the issuing of this Alert, the Trump administration is reported to be poised to ban flavored nicotine vaping. These kinds of issues could spur claims against cannabis industry participants for consumer fraud, personal injury and products liability, and heighten the scrutiny of cannabis products by federal and state regulators.

On September 10, 2019, the Federal Trade Commission announced that it had sent warning letters to three unidentified businesses “that sell oils, tinctures, capsules, ‘gummies,’ and creams” containing hemp-derived CBD, concerning health-related claims about the benefits of their CBD products. Although the FTC did not release the warning letters or identify the recipients, the FTC’s press release announcing the warning letters explained that the letters were issued to reinforce that “it is illegal to advertise that a product can prevent, treat, or cure human disease without competent and reliable scientific evidence to support such claims.”

According to the FTC press release, among the claims targeted in one of the letters was that “CBD ‘works like magic’ to relieve ‘even the most agonizing pain’ better than prescription opioid painkillers.” Another letter, explains the statement, targeted a website that asserts “that CBD products are proven to treat autism, anorexia, bipolar disorder, [PTSD], schizophrenia, anxiety, depression, Alzheimer’s disease, Lou Gehrig’s Disease (ALS), stroke, Parkinson’s disease, epilepsy, traumatic brain injuries, diabetes, Crohn’s disease, psoriasis, MS, fibromyalgia, cancer, and AIDS.”

Health-related claims like these appear to fall within the category of “egregious, over-the-line claims” that then-FDA Commissioner Scott Gottlieb said, in an April press release, would receive scrutiny from the FDA. In July, we discussed how the FDA issued a similar warning letter to Curaleaf, asserting that the company had made health-related claims about CBD that were unsupported and contrary to FDA regulations and guidance. In that letter, the FDA highlighted claims such as, “CBD has been demonstrated to have properties that counteract the growth of [and/or] spread of cancer” and “CBD has been linked to the effective treatment of Alzheimer’s disease[.]”

This week’s warning letters by the FTC coincide with unsubstantiated reports about a possible link between cannabis vaping and health conditions, in particular lung illnesses. As we have written on our Cannabis Industry Blog, those reports are not based on any scientific proof of causation between cannabis vaping and health issues; they identify nicotine vaping as a possible cause of the health claims; and they cite “black market” vaping products as being among those used in the reported cases.

The focus of federal regulators on health-related claims in the advertising of CBD products, and the unsubstantiated reports of a link between cannabis vaping and health-related conditions, demonstrate that participants in the cannabis supply chain need to be especially vigilant about the safety of their products and the messaging about their health benefits. State consumer fraud statutes could be used to target health claims on a product’s packaging and labeling, and be the basis for individual litigation or class action lawsuits. Similarly, personal injury/products liability lawsuits asserting injuries resulting from cannabis vaping could be brought without any scientific proof of causation.

The potential for consumer fraud and personal injury/products liability litigation should not be taken lightly, as the cost of defending such claims is often high. The high cost and risk for the cannabis industry may be especially daunting because of challenges cannabis companies face in obtaining comprehensive insurance. Businesses in noncannabis industries that face claims like these on a routine basis, such as pharmaceutical companies, are generally insured with high policy limits, and thus can withstand the cost of litigation, including settlements and even damages. Cannabis industry participants may not have the same backstop.

It is imperative for cannabis companies operating throughout the supply chain―from cannabis growers to retailers who sell finished cannabis products (such as CBD oil or cannabis vaporizers)―to ensure that they are implementing compliance protocols that incorporate the real-time regulatory requirements applicable to their products and businesses, and to determine the extent to which insurance for their products and businesses can be obtained and/or improved.

Moreover, as of the issuance of this Alert, the White House is reported to be considering a ban on flavored nicotine vaping products. Because marijuana is federally unlawful, such a prohibition would not likely explicitly include vaping products containing THC, but it could include hemp-derived CBD vaping products. Either way, cannabis industry participants need to be mindful that vaping is raising public safety concerns for the federal government, and cannabis vaping is likely high on the radar. We will continue to monitor the federal government’s scrutiny of vaping, particularly as it relates to cannabis.