FTC rules cover almost every business practice related to services and goods
I’m guilty of dunking on the Federal Trade Commission (FTC) in the past for not doing more to protect cannabis consumers, despite the current federal illegality of cannabis. That may be changing, at least with respect to CBD consumers.
Before diving into this latest development, I should mention that historically, cannabis is treated differently from federal agency to federal agency. Here are some of the high level examples:
- The Department of Justice is basically at a standstill on cannabis prosecutions in the wake of the Cole and Sessions memos.
- The Internal Revenue Service will not relent on enforcing section 280e against cannabis businesses, even though to do so means marijuana businesses are taxed far more harshly than other businesses.
- The Bureau of Reclamation blocks federally-regulated water for cannabis growers.
- The federal courts refuse to provide bankruptcy relief for marijuana businesses, or even help resolve disputes in many cases.
- The U.S. Patent and Trademark Office generally will not allow trademarks for marijuana products. The U.S. Postal Service will not permit advertisers to place marijuana ads in the mail.
- The Food and Drug Administration has gone after “CBD companies” for making allegedly unsubstantiated medical claims about their products.
- The National Labor Relations Board has gone after dispensary owners for union busting
- The Securities Exchange Commission is allowing ancillary businesses to trade in the pink sheets.
- The Department of Treasury–through FinCEN–has slowly opened the door for banks to do business with those in the cannabis industry.
Now, the FTC is finally getting around to helping CBD consumers, it seems.
FTC and CBD
The FTC’s self-proclaimed mission is to “prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.” Under the Federal Trade Commission Act, one of the main standards guiding FTC enforcement is to prevent “unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce.”
Read that again. There’s no mention of lawful commerce, just commerce, which leaves the door open for FTC enforcement against state-legal marijuana businesses. And when it comes to cannabis and public policy, the FTC is much closer to the NLRB than, let’s say, the IRS. Both the FTC and the NLRB exist to protect individuals from certain business practices. Though the FTC works in tandem with the DOJ’s anti-trust division, it is the only federal agency with jurisdiction over both consumer protection and competition in broad sectors of the U.S. economy.
FTC rules cover almost every business practice related to services and goods in America. The FTC doesn’t work alone; the “FTC’s work is performed by the Bureaus of Consumer Protection, Competition and Economics. That work is aided by the Office of General Counsel and seven regional offices.” It’s also pretty easy to file a consumer complaint with the FTC, starting with its online complaint system.
CBD consumer safety enforcement
So far, the FTC still isn’t doing anything about state-legal cannabis businesses and the products they sell. But the Commission is taking up the mantle when it comes to protecting CBD consumers.
Per the FTC’s website as of August 24:
The Federal Trade Commission is sending payments to 576 consumers nationwide who bought deceptively marketed cannabidiol (CBD) products from Arizona-based Kushly Industries LLC. In total, the FTC is returning almost $21,000 to consumers deceived by Kushly’s false or unsubstantiated claims about its CBD products, averaging $36 each.
In March 2021, the FTC filed a complaint against Kushly Industries, LLC for making “false or unsupported claims or falsely claim that scientific evidence exists to back them up.” Specifically, the FTC alleges that:
Kushly . . . made false or unsubstantiated claims that their CBD products could effectively treat or cure a host of conditions—from common ailments, like acne and psoriasis, to more serious diseases, including cancer and multiple sclerosis. In addition, the complaint alleges the respondents falsely told consumers that scientific studies or research prove that CBD product effectively treat, mitigate, or cure the diseases, including hypertension, Parkinson’s disease, and Alzheimer’s disease.
Further, the FTC alleges that “the respondents have used these false or unsubstantiated claims to market or sell a range of products containing CBD, including gummies, softgel capsules, and topical ointments. They promoted their products on their website, kushly.com, and social media.” The complaint also alleges that Alt participated directly in promoting and advertising Kushly’s CBD products and has been featured and quoted in articles about the company, its products, and the CBD industry in general.”
The future of FTC CBD enforcement
The Kushly case is actually the seventh such case brought by the FTC against a CBD company in the U.S. based on false and/or unsupported health claims, related to the bodily or curative effects of CBD. It’s no secret that the FDA routinely tries to shutter these kinds of CBD companies, but now the FTC is using its teeth to sue and fine these companies and their individual owners. This case marks the first time, though, that consumers are also getting refunds for products purchased, the cost of which of course must be borne by Kushly.
The two main takeaways from the Kushly case are: 1) if you’re a CBD business, do not make either untrue or unsubstantiated health claims about your CBD products; and 2) if you’re a consumer of such products, in the future you may be entitled to a refund if the FTC continues to crack down on CBD companies in this manner. We expect that will happen given that these lawsuits are another enforcement “stick” to curb deceitful practices in the wild west industry that is CBD.
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