The hemp-derived CBD market is a tough one right now. From uncertainty in when and how the FDA may begin regulating products, to the downturn in the stock markets as result of the coronavirus affecting the hemp industry, the problematic interim rules concerning hemp production and increasing state regulation, CBD companies face a plethora of issues in trying to turn a profit. Add increasing consumer class action litigation to the list – something we predicted several months ago.
Recently, Charlotte’s Web Holdings, Inc. (“CWB”) was served with a second consumer class action lawsuit alleging “multiple and prominent mislabeling” of certain products that “form a pattern of unlawful and unfair business practices that harm the public.” Benson v. Charlotte’s Web Holdings, Inc., No. 1:20-cv-00418 (N.D. Ill.) (You can read about the first consumer class action lawsuit against Charlotte’s Web here). This new lawsuit, filed in the Northern District of Illinois, focuses on two products, “Soothing Scent Hemp Infused Cream” and “Unscented Hemp Infused Cream” (the “Products”).
The gravamen of the complaint is that CWB markets the Products online and on the product packaging as containing a certain amount of hemp extract, but the Products actually contain an amount of hemp extract significantly less than the amounts claimed by CWB in its marketing and labeling. In particular, the Complaint alleges CWB represents that the Products contain “750 MG Hemp Extract,” but several tests of the Products—done by a third-party laboratory most likely at the behest of the Plaintiffs—reveal that amount of hemp extract in the products ranged from 177.5 MG to 347.9 MG.
The Plaintiffs allege claims for breach of express warranty, breach of the implied warranty of merchantability, unjust enrichment, and violation of several state consumer fraud acts. The Complaint claims that class damages exceed $5 million and seeks to recover monetary damages in an amount proven at trial and attorneys’ fees. (Feel free to email me for a copy of the complaint.)
If your company sells CBD products these lawsuits should concern you. Increasingly we work with clients who contract with one or more third parties for the manufacture, labeling and shipping and of CBD products. But if your company’s name is on the label or the product purchased through your website, you are at risk. Now is the time to revisit your contracts to ensure that the risk of the manufacturer failing to ensure the product contains the amount of CBD on your label falls on the manufacturer, not on you. Start with the defense and indemnity provisions in each of your contracts, and go from there!