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FTC Announces New “Crackdown” on CBD Companies

Top Powerful Cannabis Attorney You Should Know

FTC Announces New “Crackdown” on CBD Companies

By: Heidi Urness, Attorney at Heidi Urness Law, PLLC

False or deceptive claims, including unsubstantiated health claims, constitute the basis for a large amount of both federal and state lawsuits against hemp and CBD companies throughout the United States. At the federal level, both government entities including the Drug Enforcement Administration (DEA) and Food and Drug Administration (FDA), as well as private individuals, entities, and groups – ranging from investors, to consumers, and more – routinely take legal action against CBD and other cannabis-touching businesses.

I.   The Push-and-Pull Between DEA & FDA Authority

In many ways, the internal rules and statutory regulations enforced by the DEA and the FDA at any given time can be understood as a snapshot of the then-present legal landscape in the ongoing struggle over the regulation of cannabis and, more specifically, which components of the plant Cannabis Sativa are federally legal plant material (and thus fall outside of the scope of the DEA’s authority, and fall within the FDA’s), including its extracts & derivatives, whether natural or synthetic, etc.

II.   Enter, the Federal Trade Commission (FTC)

While the DEA is tasked with combating illegal drug trafficking throughout the U.S., and the FDA is responsible for protecting and promoting public health through the control and supervision of food and drugs, the FTC primarily focuses on monitoring businesses for deceptive or unfair business practices in an effort to protect consumers.

Beginning in April 2019, the FTC joined the FDA in issuing warning letters to CBD companies marketing products containing cannabidiol as effective to treat and cure a variety of serious diseases and conditions. The FTC may also issue an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears a proceeding is in the public interest. If such complaint is resolved by settlement or final order issued by a tribunal, a “Final Order” is issued, which carries the force of law. Any violation of a Final Order may result in additional mounting penalties in amounts up to more than $40,000 for each discrete violation of the Final Order.

Just last week, the FTC announced Final Orders punishing six different CBD companies for deceptive or false claims, and issued a press release announcing it’s own “crackdown on deceptively marketed CBD products.” (December 17, 2020).

As part of it’s initial “crackdown,” the FTC announced that it is leveraging punishments against six CBD companies for allegedly making a wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and other related claims.

FTC CBD Lawsuit Settlement Deceptive False Claims

In order to understand these new risks of enforcement activity under the FTC’s authority, we summarize each of the complaints and proposed settlements below, and advise that every CBD business owner, entrepreneur, marketing and advertising associate, and more read and understand each of these cases in order to avoid being subject to such enforcement activity themselves.

III.   Understanding the FTC’s New “Crackdown”

In the complaints filed by the FTC against these six companies, the FTC asserted two claims against the CBD companies for making misleading, deceptive, or false claims in connection with the marketing, advertising, and sale of their products.

Example: Bionatrol Health, LLC & Isle Revive, LLC

    • Count I – False or Unsubstantiated (Efficacy Claims) – Respondents have represented, directly or indirectly, expressly or by implication, that CBD Products:
      • A) treat, alleviate, or cure age-related cognitive decline; bipolar disorder; chronic pain, including arthritis pain; depression; heart disease; hypertension; and migraines;
      • B) prevent age-related cognitive decline; chronic pain, including arthritis pain; heart disease; hypertension; and migraines;
      • C) can replace the need for prescription painkillers like oxycontin; and
      • D) are safe for all consumers.
    • Count II – False Establishment Claims

In settling these complaints, the six CBD companies agreed to accept a variety of penalties, which upon examination fall into the following categories:

    • Monetary Penalty & Notice: All of the companies (as well as many of their managers and owners) must pay penalties to the FTC:
Company(ies) Bionatrol Health, LLC & Isle Revive, LLC Epichouse LLC (d.b.a. First Class Herbalist CBD) CBD Meds, Inc. HempmeCBD Reef Industries, Inc. Steves Distributing, LLC
Penalty $20,000 penalty, and notify consumers of the order. $30,000 penalty, and notify consumers of the order. $0; must notify consumers of the order. $36,254 penalty, and notify consumers of the order. $85,000 penalty, and notify consumers of the order. $75,000 penalty, and notify consumers of the order.
    • CBD Companies must not make, or assist others in making, expressly or by implication, any representation that a product:
      • is safe for all consumers;
      • replaces the need for prescription painkillers like oxycontin;
      • treats, alleviates, or cures diseases and other health conditions as effectively as most over-the-counter medications, or is an effective alternative to prescription medications;
      • reduces blood sugar levels;
      • stimulates bone formation and healing;
      • prevents age-related cognitive decline, pain, hypertension, or migraines;
      • treats, alleviates, or cures age-related cognitive decline, neurodegeneration, or prostate problems;
      • treats, alleviates, or cures any disease, including but not limited to
        • acne;
        • AIDS;
        • Alzheimer’s disease;
        • amyotrophic lateral sclerosis
        • anal fissures
        • arthritis;
        • autism;
        • autoimmune disorder;
        • bipolar disorder;
        • cancer;
        • celiac disease;
        • chronic inflammation;
        • colitis;
        • colon damage due to chemotherapy;
        • Crohn’s disease;
        • depression;
        • diabetes;
        • endocrine disorders;
        • epilepsy;
        • fibromyalgia;
        • glaucoma;
        • glioblastoma;
        • heart disease;
        • hemorrhoids;
        • high blood pressure;
        • hypertension;
        • inflammatory bowel conditions;
        • lupus;
        • migraines;
        • multiple sclerosis;
        • neurological disorders;
        • obesity;
        • obsessive compulsive disorder;
        • ocular diseases;
        • osteoporosis,
        • overactive bladder;
        • pain, including neuropathic pain, pain from spinal cord injuries, and pain from diseases like arthritis;
        • Parkinson’s disease;
        • post-traumatic stress disorder;
        • psoriasis;
        • rosacea;
        • rheumatism;
        • rheumatoid arthritis;
        • schizophrenia;
        • seizures;
        • strokes; or
        • substance abuse;
    • CBD companies must have competent and reliable scientific evidence for other health-related product claims is required (as detailed in the order, and FDA regulations).

IV.   “Welcome to Cannabis, Now Lawyer Up”

In addition to being subject to enforcement litigation against such federal entities like the DEA, FDA, and FTC, CBD companies also be highly attentive to and educated regarding the surge of private lawsuits – that is, a lawsuit filed against and/or between two or more individuals or businesses – being filed against CBD and hemp companies involving false or deceptive claims (including, in some cases, even the unintentional omission of certain information).

Such litigation can arise in connection with a variety of marketing and advertising conduct, and legal claims range from securities, to product liability, to trademark, and even class action lawsuits.

Ensure you are well informed about the risks affecting and mitigation strategies available to your CBD business and stay abreast of these issues by reading our blogs regarding securities litigation, product liability, intellectual property, and more, or contacting us directly. It is also critical you work with an attorney who is not only well advised in cannabis laws and regulations, but also leverages their knowledge and proven experience navigating these federal agencies in order to effectively see around corners and help you avoid issues before they even arise.

Contact Heidi Urness Law, PLLC with your questions regarding your hemp and/or CBD business, or any cannabis-related issues.