A spate of new class-action lawsuits threaten the CBD industry
WASHINGTON — Since the Food and Drug Administration can’t figure out whether supplements that contain cannabidiol, the marijuana-adjacent oil known as CBD, are legal, can a customer who thought they were buying a legal product demand their money back?
A group of remorseful CBD users is suing to test that theory, and it’s going after the companies that put CBD on the map.
In two major lawsuits recently filed against Charlotte’s Web and CV Sciences, two of the largest CBD manufacturers in the country, consumers allege that the companies engaged in “false, fraudulent, unfair, deceptive, and misleading” marketing of their CBD products by claiming they were run-of-the-mill dietary supplements, like vitamin D or iron. Similar lawsuits have also been filed against at least two other smaller CBD makers, Infinite CBD and Green Roads. In all of the cases, they are asking a judge to force the companies to return all of the profits they’ve made from those sales, which could decimate the nascent industry.
“The implications are huge,” said Daniel Fabricant, the CEO of the Natural Products Association. If the companies lose the lawsuits, he said, “I’m not going to say [the CBD industry] goes away, but I think it gets pretty close to going away.”
This potentially disastrous spate of lawsuits is the latest frustrating development for the CBD industry. Despite raking in millions, as interest in CBD skyrockets, CBD manufacturers have been waiting for more than a year for clear rules from the FDA on how they can legally sell these wildly popular products. Manufacturers say this spate of lawsuits is the latest in a series of negative repercussions caused by the FDA’s struggle to set clear rules of the road, and that these lawsuits are likely to continue until the FDA acts.
“We’re just going to see a lot of this sort of mischief go on until the FDA does what it needs to be doing, which is establishing a formal regulatory framework for CBD,” said Jonathan Miller, general counsel of the U.S. Hemp Roundtable, the trade association for hemp and CBD companies, which counts both Charlotte’s Web and CV Sciences as members.
Class-action lawsuits are increasingly part of being in the supplement business. In recent months, consumers have sued supplement makers over everything from claiming a product “promotes muscle growth” without having sound science to back up the claim, to claiming a product contains glucosamine sulfate, when it really includes an allegedly less powerful variant of that product, glucosamine hydrochloride.
In fact, the number of class-action lawsuits involving dietary supplements doubled from 2017 to 2018, according to a report from the law firm Perkins Coie.
But CBD manufacturers so far have avoided these sorts of lawsuits. That’s likely because the CBD market is still so nascent. Industry advocates said they predicted the legal action — so much so that the Miller called these suits the industry’s “bar mitzvah.”
So it’s only fitting that the first major lawsuit against this industry targets Charlotte’s Web, the company that in 2013 sparked nationwide interest in CBD after CNN ran a special telling the story of how its products helped control the seizures of 6-year-old Charlotte Figi.
Charlotte’s Web now controls the majority of the CBD-consumer market and rakes in annual revenues of $70 million. It is celebrated in the pro-CBD and marijuana community — so much so that Figi was featured on the cover of a recent High Times magazine.
CV Sciences isn’t far behind. The company sold $48 million worth of CBD products in 2018, according to the company’s most recent tax filing. The San Diego-based company is also one of the few manufacturers trying to get a CBD-based drug through the FDA approval process. It’s in preclinical development for a smoking cessation gum that also includes CBD.
CBD makers are also accustomed to risk. Companies like Charlotte’s Web and CV Sciences have invested millions in an industry that, up until late 2018, was entirely illegal. As a result, companies like theirs faced banks unwilling to deposit their money and rogue sheriffs that seized their products.
“If you are someone who wants to take zero risk, then don’t get in this business,” said the Hemp Roundtable’s Miller. “There is no such thing as zero risk these days in hemp or CBD.”
The specific risk at issue in the new class-action lawsuits, however, felt preventable, industry advocates said.
CBD products sold as dietary supplements are technically illegal because the FDA considers CBD a prescription rather than an over-the-counter product. But the agency has all but promised to devise a way for CBD companies to continue selling their wares over the counter.
Those companies have been begging the FDA for months to figure out that pathway as soon as possible. A top FDA official heading up the agency’s CBD work had previously promised some guidance from the agency in the summer or fall of 2019, but the agency has blown past that deadline.
NPA and Hemp Roundtable have become so frustrated with the FDA’s pace that they’re now pushing Congress to take action.They say they wouldn’t have been vulnerable to lawsuits like the class-action suits if the FDA had set clearer rules of the road from the start, and that the lawsuits are the latest sign of the damage caused by the FDA’s delays.
“The FDA is the responsible health authority on this, and for lack of a better word, [it] has been derelict [in] its duties, and the plaintiffs’ bar has capitalized on it,” NPA’s Fabricant said.
There’s no telling yet who will prevail in these class-action lawsuits.
The FDA has already warned consumers that it is currently illegal to label CBD products as dietary supplements. The companies are accused of doing just that.
But the consumers don’t have a foolproof case either. The legality of CBD products isn’t settled: While the FDA has warned consumers about these products, it hasn’t released a formal policy on the topic, and it’s made clear it’s still working on setting that policy.
Fabricant, the head of the dietary supplement trade group, called the odds of the case 50-50.
Others were a bit more bullish for the CBD companies.
“The defendants in these cases don’t need to get their checkbooks out yet,” said Anthony Anscombe, a partner at Steptoe & Johnson who specializes in class-action defenses and who isn’t involved in the CBD suits. He argued that while the companies might be breaking the FDA’s rules, that doesn’t necessarily mean consumers didn’t get some value out of these products.
Neither company has formally responded to the lawsuits or argued their case before a judge, so it’s unclear how they will defend their actions.
In a press statement last month, Charlotte’s Web said it “believes that its products are accurately labeled and that the claims are without merit.” “The Company intends to vigorously defend itself against any such suits,” Charlotte’s Web added.
CV Sciences’ CEO Joseph Dowling criticized the lawsuits calling them “meritless class action lawsuits that negatively impact consumer safety and impede creation of a regulatory framework for the future of this product category.”
The stakes are high: Consumers in both cases are asking for the companies to return all of their profits from the so-called CBD supplements. For both companies, that could mean cutting a multimillion-dollar check — a move that could virtually decimate them.
But if that did happen, CBD advocates are hopeful there would be a silver lining: That it might finally spur Congress and the FDA to speed up the process for regulating CBD.
“I’m really hopeful that doesn’t happen, but we need to be prepared,” Miller said, regarding the possibility of the companies being forced to return their profits.
“At the same time, if that happened, Congress would be forced to act,” Miller added. “If indeed somehow the sale of CBD becomes a dangerous proposition, you’re going to have people taking to the streets.”