Last week, Uber Eats and Leafly announced a partnership to begin cannabis deliveries in Toronto. Adults in Toronto can now place orders from licensed cannabis dispensaries through the Uber Eats app, delivered to them by the cannabis retailer. This marks the first time cannabis deliveries are possible on major delivery platforms.
General Manager of Uber Eats Canada Lola Kassim says their investments in delivery growth in Canada are paying off with deals like this. “We are partnering with industry leaders like Leafly to help retailers offer safe, convenient options for people in Toronto to purchase legal cannabis for delivery to their homes, which will help combat the illegal market and help reduce impaired driving,” says Kassim. “Over the last few years, we have invested heavily in our delivery business and selection has expanded tremendously. Uber Eats has grown quickly to become a versatile platform usable by diverse businesses large and small.”
Currently, Uber Eats Canada is working with three dispensaries: Hidden Leaf Cannabis, Minerva Cannabis and Shivaa’s Rose. Marissa and Dale Taylor, owners of Hidden Leaf, say this deal allows their small business to expand their reach and grow their business across the city.
Meanwhile, much further south in Florida, Circle K and Green Thumb industries have reached a deal offer up their gas station convenience stores in Florida as retail space for cannabis dispensaries.
Circle K is a massive global convenience store chain with 600 locations in Florida. The partnership they signed will allow Green Thumb to set up shop in ten of those locations beginning next year.
However, Florida regulators have stepped in and told reporters that they have not approved the deal. “This project has not been approved by the State,” a Florida Health Department spokesperson told the Washington Examiner. “Florida has never approved a Medical Marijuana Treatment Center to operate out of a gas station.”
According to a press release published last week, Cresco Labs has come to an agreement with Columbia Care Inc. to acquire the company. The $2 billion deal, expected to close in the fourth quarter of 2022, will create the largest multi-state operator (MSO) in the country by pro-forma revenue.
Cresco Labs is already one of the country’s largest MSOs with roots in Illinois. With a footprint covering a lot of the United States, their brands include Cresco, High Supply, Mindy’s Edibles, Good News, Remedi, Wonder Wellness Co. and FloraCal Farms.
Columbia Care is also one of the largest cannabis companies in the US, with licenses in 18 jurisdictions and the EU. They currently operate 99 dispensaries and 32 cultivation and manufacturing facilities. Their brands include Seed & Strain, Triple Seven, gLeaf, Classix, Press, Amber and Platinum Label CBD.
Under the agreement, shareholders with Columbia Care will receive 0.5579 of subordinate voting share in Cresco for each common share they hold. Columbia Care shareholders will hold approximately 35% of the pro forma Cresco Labs Shares once the deal goes into effect.
Coming out of the deal, Cresco’s total revenue will hit $1.4 billion, making it the largest MSO in the country. Their footprint will reach 130 retail dispensaries across 18 different markets. The companies already have the largest market share in Illinois, Pennsylvania, Colorado and Virginia and are of the top three market shares in New York, New Jersey and Florida, which gives them unique opportunities to capitalize on emerging adult use markets.
Charles Bachtell, CEO of Cresco Labs, says the deal is very complementary and they are excited about long-term growth and diversification. “This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand and competitive excellence,” says Bachtell. “The combination of Cresco Labs and Columbia Care accelerates our journey to become the leader in cannabis in a way no other potential transaction could. We look forward to welcoming the incredible Columbia Care team to the Cresco Labs family. I couldn’t be more excited about this enhanced platform and how it furthers the Cresco Labs Vision – to be the most important and impactful company in cannabis.”
Curaleaf Holdings, Inc., a Florida-based cannabis company operating in 23 states and Europe, made two big announcements earlier this morning. First, they acquired Bloom Dispensaries for $211 million. As part of the acquisition, Curaleaf is purchasing Bloom’s four dispensaries in Phoenix, Tucson, Peoria and Sedona. They also acquired Bloom’s cultivation and processing facilities outside of Phoenix.
Bloom’s revenue last year was near $66 million, with EBITDA margins above 40%. Boris Jordan, executive chairman of Curaleaf, says the Bloom acquisition is huge for the company’s position in Arizona, a state with a billion-dollar-market. “Bloom is an excellent strategic fit for Curaleaf as it further expands our capacity and retail footprint in Arizona with an attractive set of assets, enabling us to better serve the state’s US$1.4 billion-plus annual market opportunity,” says Jordan. “Adding to these benefits, Bloom will be immediately accretive to our adjusted EBITDA margins.”
Now that they have 121 retail locations across 23 states and over 5,000 employees, Curaleaf is on a path to become one of the largest cannabis companies in the world.
According to Matt Darin, president of Curaleaf, their growth strategy is continuing well into 2022. “We are excited to kick off this year continuing our momentum of expansion and growth in Florida,” says Darin. “Throughout this year our patients can expect to see Curaleaf continue to lead the Florida market with new innovative products and convenient new locations.”
ACS Laboratory, a cannabis and hemp testing lab based outside of Tampa Bay, Florida, announced the launch of their “Tested Safe Certified Seal” program. The program is designed to help raise standards and put more consumer trust in safe, tested products.
ACS Laboratory is an ISO 17025-accredited and DEA-licensed cannabis testing company founded in 2008. Last year they were certified by the Florida Department of Health to perform cannabis testing for state-licensed cannabis companies. In addition, the company acquired Botanica Testing, Inc. in 2020, adding more than 500 hemp and CBD clients to their portfolio. They now perform hemp testing for clients in more than 44 states.
The “Tested Safe Certified Seal” program allows companies to adorn their products with the trademarked seal following testing, informing consumers that their product has met safety standards and a full panel of compliance tests. “Unlike a mandated QR code that links to a Certificate of Analysis (COA) with detailed test results, the Seal shows visual proof at a glance that consumers can trust a brand,” reads the press release.
The program is also endorsed by the American Cannabinoid Association (ACA). “It is exciting to see our industry legally providing cannabis and cannabis-derived products on a commercial scale,” says Matthew Guenther, founder of the ACA. “As with any consumer product, safety and quality control remain our absolute priority.”
To earn the seal, companies send their products to the ACS lab for a full panel of safety and potency tests. ACS has a scope of services that includes: potency testing for 21 cannabinoids, 38 terpene profiles, 42 residual solvents, screening for 105 pesticides, moisture content, water activity, microbiology panels, heavy metals screening, flavonoid testing for 16 profiles, micronutrient testing, mycotoxins, Vitamin E acetate, shelf life & stability, plant regulators (PGRS), PAH testing and Pharmacokinetic Studies (PK) aka human trials.
Cresco Labs, one of the largest multistate operators (MSOs) in the country, announced the acquisition of Bluma Wellness Inc., a vertically integrated cannabis company based in Florida.
Cresco Labs, with roots in Chicago, Illinois, operate 29 licenses in 6 states across the United States. With this new acquisition, Cresco Labs solidifies their ubiquitous brand presence in the most populous markets and cements their position in Florida, a new market for them.
According to the press release, the two companies entered an agreement where Cresco will buy all of Bluma’s issued and outstanding shares for an equity value of $213 million. They expect the transaction to be completed by the second quarter of this year.
Charles Bachtell, CEO of Cresco Labs, says their expansion strategy is based largely on population. “Our strategy at Cresco Labs is to build the most strategic geographic footprint possible and achieve material market positions in each of our states,” says Bachtell. “With Florida, we will have a meaningful presence in all 7 of the 10 most populated states in the country with cannabis programs – an incredibly strategic and valuable footprint by any definition. We recognize the importance of the Florida market and the importance of entering Florida in a thoughtful way – we identified Bluma as having the right tools and key advantages for growth.”
Bluma Wellness operates through its subsidiary, One Plant Florida, which has 7 dispensaries across the state and ranks second in sales in the state. They also have an impressive delivery arm of their retail business, deriving 15% of their revenue from it.
Cannabis infused products manufacturing is quickly becoming a massive new market. With companies producing everything from gummies to lotions, there is a lot of room for growth as consumer data is showing a larger shift away from smokable products to ingestible or infused products.
This is the third article in a series where we interview leaders in the national infused products market. In this third piece, we talk with Liz Conway, Regional President of Florida at Parallel. Liz started with Parallel in 2019 after transitioning from her healthcare IT consulting practice. She now heads up Florida operations for Parallel which runs the Surterra Wellness brand.
Next week, we’ll sit down with Stephanie Gorecki, vice president of product development at Cresco Labs. Stay tuned for more!
Aaron Green: Liz, very nice to meet you. Can you tell me how did you get involved at Parallel?
Liz Conway: Well, I’ll give a little bit of background. Previously, I was working in healthcare technology and in that field, really coming out of health care reform. I was also living in Northern California and so was conscious of a bunch of startups that needed help with highly regulated spaces and policy and how to navigate both the today and the tomorrow of “Hey, we’re trying to build something super fast, but we’re not interfacing with government well enough to know how to build what we’re building and not be set back again.”
And so cannabis actually came to me. I started working with some early stage cannabis IT companies and I was the principal where I founded a firm to do this very thing, which was to help highly regulated companies get through what is today, what is tomorrow, and what can we change. I was really fortunate to be living in Northern California, and I started to help them navigate the California rules.
Then in 2016, when California went adult use, that was just a major time to turn everything on its head and see what we could get. From there, it was history. I started to work with companies, both nationally and in Canada, and met some of the folks with Parallel and was a consultant with them for a while and then joined the team.
Aaron: So, are you in Florida now?
Liz: I relocated to Florida in January 2019.
Aaron: At Parallel, how do you think about differentiating in the market?
Liz: I think that we differentiate in terms of the quality of our product, of course, and I will speak specifically to Florida where our focus is still a medical market. Every day we are trying to manage the vertical from end-to-end so that we can get the products that our people want as quickly as possible over a vast territory. Well-being is such a critical ethos that everything we do comes down to, “alright, what does this mean for well-being and how are we delivering that both in the customer experience as well as in the product?”
Aaron: With regards to differentiation, can you speak to any products in particular that you feel are differentiated in the Florida market?
Liz: In the Florida market, I think that we were the first to launch thera-gels, and the thera-gels really are medicated jelly. You can use it sublingually, or take it as an oral to swallow. From that we developed thera-chews. That line, it’s really great tasting, it’s long lasting, and the effects are getting great reviews from the patients. So that’s one area that I think we distinguish ourselves and we’re a forerunner in the Florida market.
Aaron: So, if you take one of those products as an example, can you walk us through your process for creating a new product like that?
Liz: Well, so remembering that we’re part of companies in other states, because Parallel operates in Nevada, Massachusetts and in Texas. So, we’re not developing products on our own, but we certainly are doing Florida market analysis to say, what should come next, we are listening to our customers, we listen to our people, we’ve got 39 stores across the state. We have a number of employees who are always listening. We also have employees who are part of the medical program who are using the products to address different needs and they are looking at our competitors.
So, we’re doing some competitive analysis. We’re also knowing what it is that we’re really good at, and we take it through a product development lifecycle that involves testing because we are fully vertical. In Florida, we have to always ask ourselves are we able to do this end-to-end and thus far, we’ve been fortunate enough to either build or buy that capability.
Aaron: You mentioned there’s 39 stores in Florida? Are those dispensaries?
Liz: Yeah, they are our stores. There are other stores that other companies have, but we’re the second largest footprint in the state and all over from the very edges of Pensacola down to the Florida Keys, and then over to Miami and up through Tallahassee. So, covering really all corners in the state.
Aaron: Now, with those stores do you also market your products in other people’s stores?
Liz: No. The vertical really means that our stores only carry our own products. We’re marketed in Florida as Surterra Wellness and that’s the name of our stores. Anywhere you go that there’s a Surterra Wellness, you have the same product sets and we’re not allowed to sell other folks’ products. It’s a big difference between Florida and other states.
I’ll tell you one of the nice things is, when I have a product, I know that we grew it. I know every single quality step along the way. I don’t have to go and then look at other vendors and constantly monitor their quality. Everything that we do, we touched it from the very first moment hitting the ground. So it’s nice.
Aaron: Can you walk me through one of your most recent product launches? And if you can, the full lifecycle from the initial marketing briefing up to commercialization?
Liz: Well, I can do some of that. Speaking specifically about those thera-chews – that oral dosing mechanism – we’ve got it in a couple of different flavors. We said to ourselves, “hey, there’s a real need in this market for people to experience something that was like an edible, because Florida just launched edibles.” But we didn’t consider this as an edible because they weren’t allowed at that point. We knew from other states that particularly patients like to dose, you know, with something that is long lasting and flavorful. And so we said, “how can we bring this to market as an oral-dosing product?” And so we conceived the machinery that was able to do it. We had to do quite a bit of tooling.
Prior to that, we did some market testing from our customers and our associates as well as our brand team to say “is this going to be right? Can we bring it to market?” We did the projections around anticipated demand and program growth as well as the cost. We had to figure out what it would it take to adjust the machinery. Will it work? We did some pretty significant testing on that machinery and a lot of flavor testing.
We’re fortunate enough to have one of only four licensed kitchens that can do this kind of R&D in Florida. We’re licensed by the Department of Health for cannabis R&D on an edibles-type kitchen. So we were really fortunate to be able to do that to bring it to market. And from there, it really took on a life of its own. The flavors were tested across all of us (non-dosed flavors, obviously) and we voted on the best products to hit the shelves.
Aaron: When you’re making that decision, how much of the decision was weighted by market demand from your existing customers, and just observing other markets and seeing how products perform in other markets?
Liz: Data is not as prolific as I’d like it to be in cannabis. When you hit the edge of that state line, your consumer is very different, your stores are very different, your marketing capability is very different. So we really had to look across the US and say, “how are products like this performing? Is that how Florida is going to perform?” We did use that state-by-state evidence as well as our own evidence — the response to therapy gels — if we have thera-gels, what type are we selling in terms of dosage and flavors. There are slight differences there in effect-states. And so it was a little bit of both.
Aaron: Next question gets more into like the supply chain. How do you go about sourcing ingredients for your products?
Liz: So again, in a fully verticalized state, we have to source 100% of the active cannabinoid ingredients. Then we have an authorized vendor list that we’ve worked with for other things in terms of flavors and terpenes. Then we have to go back to the DoH to make sure that the other ingredients, whether that be sweeteners, or the kind of wrapping on those thera-gels are okay — the gelatin elements in particular.
“The Florida environment all day long is the biggest hurdle that I think we face.”We use an authorized vendor list. One of the great things that we’ve done recently is to focus our vendor list on minority women and veteran-owned businesses, and so really looking deep in the supply chain to source whatever we can from a diversity of suppliers. I love that original ethos of cannabis to be of the people, by the people and for the people, as well homegrown.
Aaron: Can you give me an example of a challenge that you run into frequently?
Liz: Well, I’ll say in Florida, if you’re growing your own cannabis, it’s way different than if you’re growing it in Colorado or California. So, I’m going to start there. The great news is that after Florida allowed us to start selling smokable flower last fall, we’ve come such a long way. We’ve got new indoor grow facilities. It’s making the environmental issues much, much lower.
“I think that the best thing that we can do is try to look five years ahead and ask what could this look like?”Bringing those on-line is going to bring a much more consistent consumer experience because while I know consumers have a lot of tolerance for variations in their cannabis, but as the industry matures, they’re going to treat us much more like other CPG companies. They’re not going to want that variation. Between that and then Florida’s new testing regulations which also are making sure that the product that’s delivered only meets what’s on the label.
The Florida environment all day long is the biggest hurdle that I think we face. The humidity is much higher here than in other states.
We’re also looking at live resin. What I am watching is the next generation. A lot of live products get us really close to the plant. We’ve done so much to pull out of the plant but where are we going to preserve that original plant in all of its most original formats without having to necessarily smoke the flower itself. We’re working with the Florida Department of Health to help them understand live resin products from a health standpoint.
Aaron: What trends are you following in the industry?
Liz: As you can imagine, as the regional president of a division that goes really end-to-end on monitoring trends in edibles and infused products, medical and recreational, I’m watching the election pretty closely. It will impact banking. It could potentially impact interstate commerce and it could potentially impact research.
I’m also watching things like HR trends, what’s happening in who we employ, our leadership, and how we deal with some of the emerging union issues around the country. I think that the best thing that we can do is try to look five years ahead and ask what could this look like? Where do we put our investment dollars now to meet the future, as well as where do we put our regulatory efforts for the best public policy to have the outcomes that we want consumers to trust us with? I know that’s a really broad answer, but from where I sit, it really is what I’m looking at, across a universe of excitement, but it includes challenges also.
Aaron: The last question is, what would you like to learn more about in the cannabis industry?
Liz: Well, of course, if I had a crystal ball, that would be great. I think the data is always missing. The more data that we could get, there’s so much out there that people are using cannabis for and we just don’t understand the impacts on how is this wonderful well-being product helping so many people because a lot of people don’t like to talk about it. So the more data about our consumers and what they like and what they don’t like, even across state lines, as we could aggregate that in a uniform way. I think it would help a lot of the people who are fearful of cannabis and it would help a lot of us who are in the business, get the consumers exactly spot on what they want, which at the end of the day is why we’re all here.
Aaron: Thank you Liz, that’s the end of the interview.
By Brett Schuman, Jennifer Fisher, Brendan Radke, Gina Faldetta 1 Comment
Since the December 20, 2018 enactment of the Agricultural Improvement Act of 2018, better known as the Farm Bill, we have seen a number of new state laws addressing both the legality of hemp and products derived therefrom, most noticeably cannabidiol, better known as CBD. This piece provides a brief overview of some of the more interesting state laws concerning hemp and CBD, as well as recent developments.
Legality of Hemp
Since the passage of the Farm Bill, the vast majority of states have legalized the cultivation and sale of hemp and hemp products. However, certain states maintain laws barring some or even most forms of hemp.
The most stringent of those states is Idaho, where hemp remains illegal. In March 2020, Senate Bill 1345 – legislation that would have allowed for the production and processing of industrial hemp – died in the House State Affairs Committee, due to concerns that legalizing hemp would be the first step toward legalizing “marijuana”; that the bill contained too much regulation and that it was otherwise unworkable. As a result, Idaho is currently the only state without a legal hemp industry. Hemp with any THC, even at or below the 0.3 percent threshold under the Farm Bill, is considered equivalent to “marijuana” in Idaho and is illegal (see below for a discussion of CBD in Idaho).
Indiana, Iowa, Louisiana, and Texas have enacted bans on smokable hemp. Indiana law prohibits hemp products “in a form that allows THC to be introduced into the human body by inhalation of smoke.” Iowa has amended its Hemp Act to ban products introduced to the body “by any method of inhalation.” Louisiana prohibits “any part of hemp for inhalation” except hemp rolling papers, and Texas law prohibits “consumable hemp products for smoking.”
Some of these bans have been challenged in court. In Indiana, a group of hemp sellers requested an injunction against the smokable hemp ban in federal court, on the grounds that the federal Farm Bill likely preempted the Indiana law. In September of 2019, the district court issued the requested injunction, but the U.S. Court of Appeals for the Seventh Circuit overturned that decision in July 2020, stating that the order “swept too broadly.” The Seventh Circuit noted that the 2018 Farm Bill “expressly provides that the states retain the authority to regulate the production of hemp” and remanded the case for further proceedings.
Similarly, in Texas, hemp producers have sued in state court over the smokable hemp ban, questioning its constitutionality and arguing that it would result in a loss of jobs and tax revenue for the state. According to those producers, smokable hemp comprises up to 50 percent of revenue from hemp products. On September 17, 2020, Travis County Judge Lora Livingston issued a temporary injunction blocking enforcement of the law until trial, which currently is set to commence on February 1, 2021. Judge Livingston had previously issued a temporary restraining order to that same effect.
State Laws Regulating CBD
State laws and regulation on hemp-derived CBD are varied, and the legality of a CBD product often comes down to its form and marketing.
As an initial matter, it must be noted that notwithstanding the Farm Bill the FDA currently prohibits hemp-derived CBD from being be sold as dietary supplements, and food (including animal food or feed) to which CBD has been added cannot be introduced into interstate commerce. As discussed below, a substantial minority of states, including California, follow the FDA’s current position on the permissibility of putting hemp-derived CBD in food or dietary supplements.
Certain states include strict limitations on CBD, none more so than (once again) Idaho. Lacking any legal hemp industry, Idaho restricts CBD products to those having no THC whatsoever, rejecting the generally accepted threshold of not more than 0.3 percent THC. Idaho law also requires that hemp CBD be derived only from “(a) mature stalks of the plant, (b) fiber produced from the stalks, (c) oil or cake made from the seeds or the achene of such plant, (d) any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks, or (e) the sterilized seed of such plant which is incapable of germination.”
Kansas similarly prohibits CBD with any amount of THC, though the law is murkier than Idaho’s. While Senate Bill 282 allowed possession and retail sale of CBD effective May 24, 2018 by removing CBD oil from the definition of “marijuana,” this was broadly interpreted to apply to THC-free CBD only. Later legislation, Senate Substitute for HC 2167, effective July 2019, allowed the farming of hemp with THC levels aligned with the Farm Bill definition (i.e., 0.3 percent THC or lower), but expressly prohibited the use of industrial hemp in: cigars, cigarettes, chew, dip, or other smokeless forms of consumption; teas; liquids for use in vaporizing devices; or “[a] ny other hemp product intended for human or animal consumption containing any ingredient derived from industrial hemp that is prohibited pursuant to the Kansas Food, Drug and Cosmetic Act or the Kansas Commercial Feeding Stuffs Act,” though this final section provides that “[t] his does not otherwise prohibit the use of any such ingredient, including cannabidiol oil, in hemp products,” the law’s only reference to CBD. The Kansas Bureau of Investigation has reportedly made statements indicating that CBD with any level of THC remains illegal.
Mississippi only recently legalized the cultivation of hemp via Senate Bill 2725, the Mississippi Help Cultivation Act, which was signed into law on June 29, 2020. House Bill 1547, passed on April 16, 2019, imposed content requirements upon CBD products within Mississippi: to be legal in Mississippi, a CBD product must contain “a minimum ratio of twenty-to-one cannabidiol to tetrahydrocannabinol (20:1 cannabidiol:tetrahydrocannabinol), and diluted so as to contain at least fifty (50) milligrams of cannabidiol per milliliter, with not more than two and one-half (2.5) milligrams of tetrahydrocannabinol per milliliter.” Moreover, CBD products produced in Mississippi must be tested at the University of Mississippi’s lab. However, subject to these restrictions, Mississippi allows the sale of CBD products, including edibles, contrary to the restrictions of many of states considered friendlier to hemp.
Perhaps more surprising is Hawaii, which restricts the sale and distribution of CBD, aligning with the FDA’s guidance. In Hawaii it is illegal to add CBD to food, beverages, as well as to sell it as a dietary supplement or market it by asserting health claims. It is also illegal to add CBD to cosmetics, an uncommon restriction across the many states with CBD-specific laws and regulations. Unlike Idaho and Mississippi, which have no medical marijuana programs, Hawaii has long legalized marijuana for medical purposes and in January 2020 decriminalized recreational possession. Hawaii very recently enacted legislation allowing the production and sale of cannabis-infused consumable and topical products by medical cannabis licensees effective January 1, 2021, but this legislation did not address CBD. Given the foregoing, Hawaii’s restrictions on CBD stand out.
Beyond broad CBD restrictions, many more states prohibit the use of CBD within food, beverages, or as dietary supplements. For instance, twenty states – including California, Georgia, Illinois, Massachusetts, Michigan, New Jersey, New York, and Washington – prohibit the sale of CBD in food or beverage. In California, a bill to overhaul California’s hemp laws, Assembly Bill 2028, failed when the legislative session concluded on August 31, 2020 without a vote. AB 2028 would have allowed CBD in food, beverages, and dietary supplements (though, interestingly, it would have banned smokable hemp). As a result, California remains a relatively restrictive state when it comes to hemp-derived CBD, notwithstanding the legality of recreational marijuana.
New York allows the manufacture and sale of CBD, but requires CBD products to be labeled as “dietary supplements.” This mandate conflicts directly with the FDA’s position that CBD products are excluded from the definition of a dietary supplement. Further, despite the state’s categorization of CBD products as dietary supplements, New York prohibits the addition of CBD to food and beverages. These regulations have resulted in a confusing landscape for retailers and manufacturers in the Empire State.
Several states also have labeling requirements specific to CBD products. Batch numbers and ingredients are ubiquitous, but an increasingly common requirement is the inclusion of a scannable code that links to specific information about the product. States imposing this requirement include Florida, Indiana, Texas, and Utah. Indiana is viewed as having one of the more comprehensive labeling requirements for CBD products – or, depending upon your perspective, the most onerous.
By David J. Apfel, Nilda M. Isidro, Brendan Radke, Emily Notini, Zoe Bellars No Comments
Consumer demand for products containing cannabidiol (CBD) is on the rise across the country, with industry experts estimating that the market for CBD products will reach $20 billion by 2024. This boom in consumer demand has outpaced the regulatory framework surrounding these products. While the 2018 Farm Bill decriminalized hemp, it left much up to individual states and preserved the FDA’s jurisdiction over dietary supplements, foods and cosmetics. The FDA has not yet issued any specific rulemaking for CBD products.
Against this background, it is not surprising that consumer class actions regarding hemp-derived CBD products are flourishing. Over the past year alone, the plaintiffs’ bar has filed approximately twenty putative class action lawsuits against manufacturers of hemp-derived CBD products. The cases are primarily in federal court in California and Florida, with additional cases in Illinois and Massachusetts. Plaintiffs challenge the marketing and advertising of a variety of CBD products, including oils, gummies, capsules, creams, pet products and more.
The cases so far follow a familiar pattern seen in prior consumer class actions, especially in the food and beverage industry. Read on to learn what plaintiffs have claimed in the CBD lawsuits, how companies are defending their products, and how best to position your hemp-derived CBD products in light of lessons learned from past litigation.
What These Lawsuits Are Claiming, and How Companies Are Defending Their Products
In most of the recent CBD lawsuits, plaintiffs claim either that: 1) product labels over- or understate the amount of CBD in the products; and/or 2) the sale of CBD products is inherently misleading to consumers because the products are purportedly illegal under federal law. Regardless of which theory underlies the claims, plaintiffs typically frame their claims as consumer fraud, false advertising, breach of warranty, unjust enrichment, and/or deceptive trade practices.
In most cases, defendants have filed motions to dismiss seeking to have the cases thrown out. In these motions, defendants argue that plaintiffs’ claims are “preempted” by the Federal Food Drug and Cosmetic Act (FDCA), and that only the federal government can enforce the FDCA. Some defendants have additionally argued that if the court is not prepared to dismiss the claims as preempted, the doctrine of “primary jurisdiction” applies. This means that the issues raised regarding CBD are for the FDA to decide, and the cases should be stayed until the FDA finalizes and issues rules on products containing hemp-derived CBD. Many defendants have also advanced dismissal arguments for lack of standing, claiming that the individuals bringing the lawsuits are trying to sue for conduct that never harmed them personally (e.g., because they never purchased a particular product), or will not harm them in the future (e.g., because plaintiffs have stated they will not buy the product again). The standing arguments often apply to particular claims or products within the lawsuit, rather than to the lawsuit as a whole.
Current Status of the Cases
Of the approximately twenty consumer class actions filed over the last year, about half remain pending:
Five have been stayed pursuant to motions filed by defendants;
Two have motions to dismiss pending;
One has a pending motion to vacate a default judgment against defendants;
One was filed earlier this month, and defendant’s deadline to respond has not yet elapsed.
To date, none of the cases (currently pending or otherwise) has proceeded to discovery, and no class has yet been certified. That means that no court has yet determined that these cases are appropriate to bring as class action lawsuits, rather than as separate claims on behalf of each individual member of the putative class. This is significant, because plaintiffs’ ability to achieve class certification will likely influence whether these CBD lawsuits will continue to be filed. Consumer fraud cases like these typically do not claim any physical injury, and the monetary damages per individual plaintiff are relatively low. As such, the cases often are not worth pursuing if they cannot proceed as class actions.
Of the cases that are no longer pending, all but two were voluntarily dismissed by plaintiffs. While the motivation behind these dismissals is not always announced, approximately half of the voluntary dismissals came after defendants filed a motion to dismiss, but before the court had ruled on it. One Florida case was mediated and settled after the court denied defendant’s motion to dismiss.1 A California court spontaneously dismissed one matter (without the defendant having filed any motion) due to a procedural defect in the complaint, which plaintiffs failed to correct by the court-imposed deadline.2
Early Outcomes on Motions to Dismiss
Of the thirteen motions to dismiss filed to date, only five have been decided. So far:
No court has dismissed a case based on federal preemption grounds. Courts have either deferred ruling on preemption, or denied it without prejudice to re-raising it at a later time.
Four courts have stayed cases based on primary jurisdiction.3
Only one court has denied the primary jurisdiction argument.4
Standing arguments have been successful in three cases,5 and deferred or denied without prejudice to later re-raising in the other two cases.6 However, the standing arguments applied only to certain products/claims, and were not dispositive of all claims in any case.
These rulings show a clear trend towards staying the cases pursuant to primary jurisdiction. In granting these stays, courts have noted that regulatory oversight of CBD ingestible products, including labeling, is currently the subject of FDA rulemaking, and that FDA is “under considerable pressure from Congress” to expedite the publication of regulations and guidance.7
Plaintiffs may be recognizing the trend towards primary jurisdiction as well, since there is now at least one case where plaintiffs agreed to a stay after defendant filed a motion to dismiss asserting, among other things, primary jurisdiction.8 But some plaintiffs are still resisting. For example, in the first case to have been stayed plaintiffs have since filed a motion to lift the stay. The motion—which was filed after the case was reassigned to a different judge—argues that primary jurisdiction does not apply, and that the FDA’s recent report to Congress suggests no CBD-specific rulemaking is forthcoming.9 The motion is pending.
Lessons Learned From Food Industry Consumer Class Actions
The motions to dismiss that have been filed to date in CBD-related class actions follow a tried and true playbook that has been developed by defense counsel in other food and beverage industry class actions. For example, the primary jurisdiction arguments that have been gaining traction in the CBD consumer class actions are very similar to primary jurisdiction arguments that were successful years earlier in cases involving the term “natural” and other food labeling matters.10
Similarly, the standing arguments that have succeeded in the early motions to dismiss CBD consumer class actions followed similar standing arguments made years earlier in food and beverage class actions.11
The preemption arguments that have largely been deferred in CBD consumer class actions to date could become a powerful argument if and when the FDA completes its CBD rulemaking. The preemption defense has been particularly effective when the preemption arguments focus on state law claims that require defendants to omit or add language to their federally approved or mandated product labeling, or where plaintiffs otherwise seek to require something different from what federal standards mandate.12 These arguments could be particularly compelling once the FDA issues its long-anticipated rulemaking with respect to CBD products.
Until then, primary jurisdiction will likely continue to gain traction. The FDA’s comprehensive regulatory scheme over food, dietary supplement, drug, and cosmetic products, combined with the FDA’s frequently-expressed intention to issue rulemaking with respect to CBD-products, and a need for national uniformity in how such rulemaking will interface with state requirements, converge to make primary jurisdiction especially appropriate for CBD-related class actions.13
How to Best Position Your Products
Until the FDA issues its long-awaited rulemaking regarding CBD products, companies can take the following steps to best position their products to avoid litigation and/or succeed in the event litigation arises:
Work with reputable labs to ensure the amount of CBD stated on product labeling and advertising is accurate;
Ensure that the product is manufactured according to appropriate current Good Manufacturing Processes (cGMPs);
Ensure that any claims made on product labeling and/or in advertising are consistent with FDCA requirements and applicable FDA guidance to date – for example, if the product is a dietary supplement, avoid making express or implied claims that it can cure or prevent disease;
Maintain a file with appropriate substantiation to support any claims stated in product labeling and advertising;
Work with legal counsel to stay abreast of developments in federal and state laws applicable to hemp-derived CBD products, and how any changes might impact potential class action defenses; and
If a lawsuit arises, work with legal counsel to develop a strategy that not only resolves the current litigation as efficiently as possible, but also positions the company strategically for any future consumer claims that may arise.
References
Final Mediation Report, Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017-RNS, (S.D. Fla. July 30, 2020).
Court Order, Davis v. Redwood Wellness, LLC, 2:20-cv-03273-PA-JEM (C.D. Cal. Apr. 10, 2020).
Electronic Order, Ahumada v. Global Widget LLC, 1:19-cv-12005-ADB (D. Mass. Aug, 11, 2020); Memorandum and Order, Glass v. Global Widget, LLC, 2:19-cv-01906-MCE-KJN (E.D. Cal. June 15, 2020); Order Granting in Part Defendant’s Motion to Dismiss and Staying Remaining Causes of Action, Colette et al. v. CV Sciences Inc., 2:19-cv-10227-VAP-JEM (C.D. Cal. May 22, 2020); Order on Motion to Dismiss, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. Jan. 3, 2020).
Order on Motion to Dismiss, Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017-RNS, (S.D. Fla. Mar. 30, 2020).
Order Granting in Part Defendant’s Motion to Dismiss and Staying Remaining Causes of Action, Colette et al. v. CV Sciences Inc., 2:19-cv-10227-VAP-JEM (C.D. Cal. May 22, 2020); Order on Motion to Dismiss, Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017-RNS, (S.D. Fla. Mar. 30, 2020); Order on Motion to Dismiss, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. Jan. 3, 2020).
Electronic Order, Ahumada v. Global Widget LLC, 1:19-cv-12005-ADB (D. Mass. Aug, 11, 2020); Memorandum and Order, Glass v. Global Widget, LLC, 2:19-cv-01906-MCE-KJN (E.D. Cal. June 15, 2020).
Order on Motion to Dismiss at 12, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. Jan. 3, 2020).
Minute Entry, Pfister v. Charlotte’s Web Holdings, Inc., 1:20-cv-00418 (N.D. Ill. Aug. 11, 2020).
Plaintiff’s Motion to Lift Stay, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. July 13, 2020).
See, e.g., Astiana v. Hain Celestial Grp., Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012), rev’d on other grounds, 783 F.3d 753 (9th Cir. 2015); Taradejna v. Gen. Mills, Inc., 909 F. Supp. 2d 1128 (D. Minn. 2012).
See Miller v. Ghirardelli, 912 F. Supp. 2d 861, 869 (N.D. Cal. 2012) (holding that the named plaintiff lacked standing where the products purchased by the putative class members were not “substantially similar” enough to those purchased by the named plaintiff); Colucci v. ZonePerfect Nutrition Co., No. 12-2907-SC, 2012 WL 6737800 (N.D. Cal. Dec. 28, 2012) (finding one of two named plaintiffs lacked standing because, even though the other named plaintiff (his fiancée) purchased the nutrition bars for him, he himself did not purchase any of the bars); Veal v. Citrus World, Inc., No. 2:12-CV-801-IPJ, 2013 WL 120761 (N.D. Ala. Jan. 8, 2013); Robinson v. Hornell Brewing Co., No. 11-2183 (JBS-JS), 2012 WL 6213777 (D.N.J. Dec. 13, 2012) (holding that there was no Article III standing because the named plaintiff had testified and stated in written discovery that he would not purchase the product in the future).
See, e.g., Turek v. Gen. Mills, Inc., 662 F.3d 423 (7th Cir. 2011); Lam v. Gen. Mills, Inc., 859 F. Supp. 2d 1097 (N.D. Cal. 2012); Veal v. Citrus World, Inc., No. 2:12-CV-801-IPJ, 2013 WL 120761, at *9-10 (N.D. Ala. Jan. 8, 2013).
See, e.g., Astiana v. Hain Celestial Grp., Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012), rev’d on other grounds, 783 F.3d 753 (9th Cir. 2015); Taradejna v. Gen. Mills, Inc., 909 F. Supp. 2d 1128 (D. Minn. 2012).
According to a press release published earlier this week, ACS Laboratory announced the Florida Department of Health Office of Medical Marijuana Use (OMMU) has certified ACS to test products for medical dispensaries in the state.
This certification comes after the Florida Department of Health adopted an emergency rule, requiring dispensaries to only use a certified lab for product testing. Dispensaries (or medical marijuana treatment centers as the state calls them) in Florida have until December 24, 2020 to sell products tested before June 24, 2020.
ACS Laboratory was founded in 2008. They are DEA- and AHCA-licensed, ISO 17025-accredited and CLIA-accredited with the largest testing facility in the eastern United States, according to their press release. They are USDA-compliant and certified by Florida to test hemp in the state and are now also certified to test medical cannabis products.
As a certified cannabis testing lab in Florida, ACS has to meet a list of requirements, similar to rules one might find in other legal states. The Florida rules mandate that labs are ISO-accredited and qualified to accurately test for contaminants, moisture content and cannabinoid potency.
Earlier this year, ACS acquired Botanica Testing, Inc., which added about 500 new hemp and CBD clients to their portfolio. ACS Laboratory now has customers in 44 states.
The Brand Marketing Byte showcases highlights from Pioneer Intelligence’s Cannabis Brand Marketing Snapshots, featuring data-led case studies covering marketing and business development activities of U.S. licensed cannabis companies.
Here is a data-led, shallow dive on GrowHealthy:
GrowHealthy – Basking in Sunshine
Although Florida may only have a medical market and a relatively restrictive regulatory framework, a handful of companies are leading the pack in dominating the new market. Even though the medical cannabis market is fairly young and the state has not adopted adult use yet, the market’s growth trajectory is very encouraging.
GrowHealthy (GH) is one of those companies capitalizing on market growth with a number of expansion plans. They already have 16 dispensaries open for business throughout Florida and have plans to add to that considerably.
In the past few months, GH has taken a number of steps to enhance their web presence. Perhaps as a reaction to the COVID-19 crisis, GH, along with many other companies in the cannabis space, have started aggressively improving their websites.
With the pandemic wreaking havoc on the national economy, cannabis companies are not immune. However, in the early days of the health crisis, Florida deemed the medical cannabis market ‘essential.’ That proved to be a boon for cannabis companies in the state like GH, who pivoted to curbside pickup and delivery quickly.
In order to capitalize on curbside pickup and delivery, a strong web presence is very important. GH saw a solid rise in web traffic in the past few months, thanks in part to their continuing expansion of brick-and-mortar dispensaries. Adding to their boost in web traffic, GH saw increased strength in their backlinks profile, indicating further increases in future web traffic.
In May, GH shot up to the 20th hottest brand in the United States, up from the 38th slot in April, according to the Pioneer Index. We can attribute this jump to the brand’s performance in web-related activities. The trend continued into the first week of June, as GH’s web activities were the 2nd best nationwide, with the company becoming the 4th hottest brand in the Pioneer Index.
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