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Don’t Mess with the FTC If You’re Involved in CBD!

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CBD Product Manufacturer Ordered to Cease and Desist Dissemination of False and Misleading Health Claims Pending Resolution of Legal Complaint Regarding Violations of the FTC Act

Our clients often ask us to review advertising and marketing claims, as well as Press Releases and other formal media communications, prior to dissemination to customers and the general public. While some companies have not made this a practice due to ignorance of the law, or hesitance to spend money on legal fees given the (historically) low likelihood of enforcement action, this week’s announcement from the Federal Trade Commission (FTC) is reason enough to make sure your company is taking the time to ensure compliance with the laws and regulations governed by the FTC and Food and Drug Administration (FDA). On April 24th, the owner of a company called Whole Leaf Organics agreed to a restraining order and preliminary injunction prohibiting the company from disseminating false or unsubstantiated advertisement claims in connection with the labeling, advertising, marketing, distribution, and sale of “Thrive” and “CBD-EX, CBD-RX, and CBD-MAX,” due to unsubstantiated and false or misleading representations by the company that the aforementioned products treat COVID-19 and cure cancer.

To be clear, this injunction was agreed to by the defendant even though there has been no final judgement regarding the allegations that defendant violated provisions of the FTC Act, so this is not an admission of guilt but a temporary legal action that prevents the company from continued violations prior to the trial schedule for January 2021. In a complaint filed by FTC earlier this month, FTC argued that the company, by and through its representatives, disseminated false and misleading representations via the company website, from at least December 2018 through April 2020. The company drew the ire of FDA officials in November 2019 as well, resulting in the issuance of an FDA warning letter for the use of unapproved new drug claims in violation of Section 355(a) of the Food, Drug, and Cosmetic Act (FD&CA). Despite the previous FDA enforcement action, defendants did not remove the unapproved new drug claims from the website within 15 days, as required by the FDA warning letter, and furthermore, continued to market their CBD products using these claims up until the filing of the FTC complaint earlier this month. Given that the defendant continued to violate laws governed by FTC and FDA even after receiving a warning letter from FDA only six months earlier, it is hardly a surprise that the FTC decided to not only file an administrative complaint, but also seek a temporary restraining order prohibiting the defendant from continuing to violate the law for the immediate future before the commencement of official legal proceedings related to the alleged violations committed by defendant.

As part of the restraining order and injunction, Whole Leaf Organics and any representatives, are prohibited from, directly or indirectly, making representations that the CBD products: (1) treats, prevents, or reduces the risk of COVID-19; or (2) treats cancer; or (3) cures, mitigates, or treats any disease unless the representation is non-misleading, and at the time the representation is made, there is competent and reliable scientific evidence that substantiates the representation is true. The defendant must also save any correspondence and other business communications regarding the dissemination of health claims and representations, i.e. the defendant’s attorneys are on the hook as well under this restraining order approved by a California court. Interestingly, the FTC acknowledged that the prohibition on health claims and other representations for products does not apply to any product that is approved by FDA via the New Drug Application Process (NDA) or in compliance with a tentative final or final monograph issued by FDA. As we explained in this blogpost, the CARES Act paved the way for substantial changes to the FDA approval of Over-the-Counter (OTC) drugs, including the acceleration of procedures for changes and additions to OTC drug monographs. This minor detail is rather significant in that it confirms our previous conclusions regarding OTC legal reforms and the potential impact of such reforms on the CBD industry.

As this rather extraordinary example demonstrates, the FTC and FDA are serious when it comes to pursuing enforcement actions against repeat offenders of laws related to false and misleading health claims and representations. The enforcement action is arguably a positive thing for those in the industry that do comply with the law—companies that expend time and money on FDA and FTC compliance should feel that these (rather trivial) compliance costs are worth it in the long run. If cannabis companies know that others in the industry continue to disseminate false and misleading health claims without fear of substantive FTC or FDA enforcement action, it is rather tempting to conclude that everyone in the industry can do the same. That means this first-of-its-kind FTC complaint and preliminary injunction involving a CBD product manufacturer should be celebrated by those in the industry, or at least those who demonstrate a sincere commitment to compliance and risk management measures.

If you are interested in speaking with us about marketing, advertising, and other media representations regarding your CBD or Hemp-derived product, please reach out to the team at Green Light Law Group today for further guidance on these issues. If you are seeking additional information on the CARES Act and OTC drug law reforms in relation to the CBD industry, we are also available and ready to be of assistance to you in navigating this new legal territory.

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Green Light Attorneys Perry N. Salzhauer, Daniel Shortt, and Brittany Adikes have joined McGlinchey Stafford