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Faced with false, deceptive, misleading CBD product marketing, FTC can suspend the right to sell and impose significant fines and penalties.
INTRODUCTION
The growing cannabis or CBD industry is highly competitive, and regulations are very complex. At the same time, marketing and advertising are an essential part of the business. Compelling and creative marketing strategies are necessary to drive sales continually. However, trouble looms when marketing and advertising become false, deceptive, or misleading in the eyes of the Federal Trade Commission (FTC) or other regulators.
In December 2020, the FTC disclosed “Operation CBDeceit” and penalized six CBD companies for making deceptive marketing claims. Likewise, in May 2021, the FTC filed an enforcement action against a seventh CBD retailer and the company’s sole officer for making false or unsupported marketing claims.
In several of these seven reported cases, the FTC charged individual corporate officers, not just their companies. The FTC’s willingness to charge corporate officers in their personal capacity for false, deceptive, or misleading CBD product marketing further raises the stakes.
Finally, some state laws provide for criminal penalties for false advertising, including fines or jail time. Criminal penalties are likely where there is actual fraud in advertising. Also, using state consumer protection laws, customers often can sue deceptive advertisers.
*Pro-Tip: If you are concerned about false, deceptive, or misleading health claims in CBD marketing campaigns, or even fraud, contact us. Our team can help identify experienced attorneys to provide confidential legal advice in this area. We also assist companies and individuals with compliance training and mitigation strategies to reduce legal exposure to deceptive marketing claims.
DISCUSSION
For years, states have carried most of the burden of regulating the CBD industry. But in the wake of the recent explosion of CBD products, the federal government is getting more involved. Today, the FTC closely monitors CBD advertising and marketing practices as part of its duty to protect consumers from unfair, deceptive, or fraudulent practices in the marketplace. Federal regulation of the CBD industry will only increase in the future.
In addition to the FTC, the Food and Drug Administration (FDA) actively seeks to monitor and impose additional regulations over the manufacture, advertisement, and sale of CBD products. Industry executives would be wise to learn all they can about federal regulators’ concerns if they want to steer clear. Also, it is always good practice to learn from competitors’ mistakes. All of the recent enforcement activity boils down to these two critical points: heed the federal regulators’ concerns, which are well known. And learn from the enforcement actions brought to date against others and learn from their mistakes.
HEED FEDERAL REGULATORS’ WELL-KNOWN CONCERNS
In Operation CBDeceit, the defendants failed to heed the FTC’s warnings about deceptive marketing practices in the industry. While OperationCBDeceit was the first major public federal law enforcement crackdown on false, deceptive, or misleading marketing claims about CBD products, there had been prior warnings. The FTC had sent multiple letters to businesses warning about making questionable disease-related claims for CBD products without valid data, which was well-known in the industry.
As the FTC has stated: Our “message to marketers has been consistent: The same substantiation principles the FTC has applied to health claims for close to 50 years apply to similar claims for CBD products. Companies that expressly or imply that what they sell can prevent, treat, or cure serious medical conditions are held to the highest substantiation standards, and marketers can expect careful scrutiny of those promises.
FTC:One Thing CBD Marketers Need to Know Right Now
Federal regulators are not hiding the ball. The FTC’s concerns are public. Therefore, knowing where the FTC stands, CBD retailers and individual corporate officers can take steps to avoid FTC investigations and enforcement actions. Simply put, claims that oils, balms, gummies, coffee, and other goods can prevent, treat or cure serious health disorders like cancer and diabetes are simply not grounded in scientific data at this time. Still, these claims are rampant on the internet and social media. Advertising these claims crosses the federal government’s red line.
The FDA has also been vocal. For example, the FDA has issued warning letters to two companies for selling products labeled as “containing CBD” in ways that violate the Federal Food, Drug, and Cosmetic Act. It is illegal to market unapproved drugs labeled as “containing CBD.” The FDA has not approved any over-the-counter (OTC) drugs containing CBD.
While the FDA has not issued significant safety guidelines for CBD products, it is monitoring the data. Earliest predictions for FDA guidelines are for late 2021 or early 2022. Critical to the FTC’s enforcement actions, the FDA has not yet approved a marketing application for CBD to treat any disease or condition. Nor has the FDA determined that CBD is safe and effective for any particular disease or condition. (The agency only reports approval of one cannabis-derived and three cannabis-related drug products.) Without FDA safety guidelines and valid data, it is very risky for anyone to make CBD product health claims. Click here for FDA’s Frequently Asked Questions on CBD Regulations
CBD product marketers are on notice that federal regulators have concerns and should take them seriously. The consequences for ignoring federal regulators’ warnings can be severe. Cease and desist letters, warning letters, investigations and enforcement actions are likely to explode in the future to halt the wave of unsupported health claims plaguing the CBD industry. Suspensions of the right to sell CBD products and significant fines are potential remedies.
This blog post focuses on federal enforcement. Note that some state laws provide for criminal penalties, such as fines or jail time, for false advertising. Prosecutions typically involve evidence of actual fraud. Also, using state consumer protection laws, customers often can sue deceptive advertisers.
*Pro-Tip: Remember to consult civil or criminal defense counsel for legal advice regarding any court case.
LEARN FROM OTHERS’ MISTAKES
Operation CBDeceit and the FTC’s publicized warning letters put everyone on notice of the FTC’s concerns. Even so, CBD retailers continually make questionable disease-related claims, and the FTC is watching.
In May 2021, the FTC announced its latest enforcement action to curb false, deceptive, or misleading health and efficacy claims for CBD products. Scottsdale, Arizona-based Kushly Industries and its sole corporate officer had to agree not to make false or unsupported CBD product claims or falsely claim that scientific evidence exists to back them up. They also agreed to pay more than $30,000 in consumer redress.
In Kushly, the FTC alleged Kushly and its officer made false or unsubstantiated claims that their CBD products could effectively treat or cure diseases—from acne and psoriasis to cancer and multiple sclerosis. In addition, Kushly falsely and repeatedly claimed that “scientific studies” or “research” prove that CBD products effectively treat, mitigate, or cure diseases like hypertension, Parkinson’s disease, and Alzheimer’s disease. These facts prompted the FTC to take action.
By now, CBD sellers should know that federal regulators will not condone unsupported health claims. Even if CBD may have some health benefits, there is still no scientific proof that CBD can treat diseases like Parkinson’s, multiple sclerosis, cancer, or any of the other conditions claimed.
Aware of Operation CBDeceit, Kushly did not learn from the mistakes in those cases.
Interestingly, the Kushly case provides insight into the FTC’s reasons for charging individual corporate officers. Kushly’s sole officer actively promoted and advertised Kushly’s CBD products. He was featured and quoted in articles about the company, its products, and the CBD industry in general. Kushly promoted its officer’s claims on the company’s website and social media.
Individual corporate officers personally involved in marketing campaigns and ads for CBD products should be especially aware of the legal risks stemming from false, deceptive or misleading advertising.
*Pro-Tip: Review all website content, social media posts (including Youtube, Facebook, Instagram, Twitter), product packaging, and email marketing campaigns for statements of CBD product health claims that lack valid scientific data.
Operation CBDeceit and the FTC’s publicized warning letters put everyone on notice of the FTC’s concerns. Even so, CBD retailers continually make questionable disease-related claims, and the FTC is watching.
In May 2021, the FTC announced its latest enforcement action to curb false, deceptive, or misleading health and efficacy claims for CBD products. Scottsdale, Arizona-based Kushly Industries and its sole corporate officer had to agree not to make false or unsupported CBD product claims or falsely claim that scientific evidence exists to back them up. They also agreed to pay more than $30,000 in consumer redress.
In Kushly, the FTC alleged Kushly and its officer made false or unsubstantiated claims that their CBD products could effectively treat or cure diseases—from acne and psoriasis to cancer and multiple sclerosis. In addition, Kushly falsely and repeatedly claimed that “scientific studies” or “research” prove that CBD products effectively treat, mitigate, or cure diseases like hypertension, Parkinson’s disease, and Alzheimer’s disease. These facts prompted the FTC to take action.
By now, CBD sellers should know that federal regulators will not condone unsupported health claims. Even if CBD may have some health benefits, there is still no scientific proof that CBD can treat diseases like Parkinson’s, multiple sclerosis, cancer, or any of the other conditions claimed.
Aware of Operation CBDeceit, Kushly did not learn from the mistakes in those cases.
Interestingly, the Kushly case provides insight into the FTC’s reasons for charging individual corporate officers. Kushly’s sole officer actively promoted and advertised Kushly’s CBD products. He was featured and quoted in articles about the company, its products, and the CBD industry in general. Kushly promoted its officer’s claims on the company’s website and social media.
Individual corporate officers personally involved in marketing campaigns and ads for CBD products should be especially aware of the legal risks stemming from false, deceptive or misleading advertising.
*Pro-Tip: Review all website content, social media posts (including Youtube, Facebook, Instagram, Twitter), product packaging, and email marketing campaigns for statements of CBD product health claims that lack valid scientific data.
CONCLUSION
False, deceptive, or misleading CBD product marketing is a serious issue that warrants urgent attention. Federal regulators are on the hunt. CBD sellers face the risk of suspension from selling and substantial fines. An FTC investigation and enforcement action will cost time and money to defend. Individual corporate officers can be held accountable as well, at high financial, personal and professional costs. State criminal penalties can also apply in egregious cases.
