Private labelling, or white labelling, is a popular option for brands looking to enter the CBD space. This practice is where a product is manufactured by one company but branded, marketed and sold by another.
There are several companies that specialize in manufacturing end-to-end finished CBD products. They commonly provide third-party test results, certificates and data to verify the purity and potency of products created. Technically, all new brands need to do is place their label on the package and start selling! However with any new venture, establishing a successful private label CBD brand will inevitably mean various challenges need to be overcome.
Securing Quality Sources of CBD
Finding the right partners to work with is a must. The best way to source credible and trustworthy suppliers and manufacturers is to look for certifications and audits from third-party agencies. These include the Global Food Safety Initiative (GFSI), the Safe Quality Food (SQF), the United States Department of Agriculture’s (USDA) organic certification program and others.
The USDA organic certification program is a rigorous multi-step audit process to increase supply chain sustainability. Organic certification is a form of elective, self-regulation for manufacturers which consumers have eagerly welcomed into the marketplace. Look for the USDA organic seal to help identify which manufacturers are trustworthy and can produce a range of organic products.
From a consumer perspective, certifying your products as organic is an additional way to provide both supply chain transparency and increase confidence when trying new CBD products. It also provides a form of quality assurance to skeptical consumers, especially those who avidly read product labels prior to making a purchasing decision. Members of this “label reader” demographic will consistently choose organic products for the quality and transparency they provide with pure and natural ingredients.
Creating a Unique Product
Innovation and creativity will continue to be important differentiators due to the highly competitive nature of the CBD marketplace. New ingredient innovations such as water dispersible materials are big game-changers. From chewing gum to energy drinks, the opportunities for new and unique CBD products under your own private label are limitless.
There are only a handful of CBD brands who are willing, or even able, to be certified organic today. USDA certification is an opportunity for brands looking to adapt to changing consumer preferences, diversify their product offerings and invest in supply chain transparency.
In the past, product differentiators involved third-party lab testing or providing COAs — today that’s just industry standard. The USDA organic seal is becoming one of the hemp industry’s most coveted certifications because it is a product differentiator.
Trustworthiness, transparency and traceability are important factors for consumers to consider when shopping for products. These factors should also be considered when producing products and while vetting vendors, partners, stakeholders and supply chain suppliers.
Credible certifications allow consumers to make informed decisions while feeling confident that they are purchasing products from reputable sources. Research has shown that today’s CBD market lacks credibility while consumers are desperately seeking comfort and are eager to purchase from trustworthy brands.
By Jonathan C. Sandler, Alissa Gardenswartz No Comments
By now, cannabis companies have heard that the Food and Drug Administration (FDA) has issued a slew of warning letters to sellers of CBD products for selling unapproved and mislabeled drugs and illegally adulterated food, as prohibited by the Federal Food, Drug and Cosmetic Act. However, companies marketing CBD products should know that making any health-related claims about their products also exposes them to liability under state and federal consumer protection laws. These laws additionally prevent CBD sellers from misrepresenting how much CBD is contained in their products, and even govern how companies communicate with their customers via text message. As the former head of consumer protection enforcement in Colorado and a lawyer routinely defending consumer protection class actions in California, we have seen firsthand how not considering these laws when developing a sales and marketing strategy can result in protracted and expensive litigation.
Consumer Protection Laws – Federal and State
Section 5 of the Federal Trade Commission (FTC) Act provides that “unfair or deceptive acts or practices in or affecting commerce . . . are declared unlawful.”1 The FTC enforces this law, and has clarified that “deceptive” practices involve a material representation, omission or practice that is likely to mislead a reasonable consumer under the circumstances.2 In other words, a claim is deceptive if an average consumer would believe and rely on the misleading claim to buy something. With the rise of social media marketing, the FTC has also issued disclosure guidelines for companies and influencers promoting products online.3 Every state has some form of consumer protection statute that similarly prevents deceptive marketing, and is typically enforced by the state’s attorney general. Many state laws also allow for consumers to bring actions themselves.
Both the FTC and state attorneys general have used these laws for decades against companies making scientifically unsupported health claims about their products. Just this month, the FTC and the Maine attorney general filed a lawsuit against two dietary supplement companies who were claiming that their products were a “miraculous natural solution” for life-threatening diseases. According to the lawsuit, the companies violated a 2018 settlement that required them to not make any health claims about their products without first conducting at least one randomized, double-blind, placebo-controlled trial to support the claims.4 While much of the enforcement around dietary supplements has focused on unsubstantiated health claims, other actions have been brought for improper “expert” endorsements as well as misrepresenting the amount of active ingredient contained in the supplement.5 In other words, these laws are used to police all manner of labelling and marketing of products, including those containing CBD. The FTC has already issued warning letters to CBD companies several times this year, and has stated that CBD sellers could be subject to enforcement for making unsubstantiated health claims.6
While consumer protection laws are largely focused on the content of advertisements, there are also laws that address how sellers can communicate with consumers. The Telephone Consumer Protection Act (TCPA) restricts telemarketing and the use of automated systems to contact consumers, and applies to both voice calls and text messaging. Both the FTC and state attorneys general can enforce the TCPA, and consumers can bring private TCPA actions as well. Because the TCPA allows for courts to award $500 per violation—that is, per illegal call or text—companies can face judgments into the millions of dollars.
Recent Consumer Protection Lawsuits in the Cannabis Industry
Cannabis is proving to be an attractive target for consumer protection litigation.All companies need to navigate consumer protection laws when they market their products, but class action lawyers may be pursuing cannabis companies in particular because of the products’ legal uncertainty, and because they provide opportunities for unique claims of deception. For example, a nationwide class of consumers recently filed a lawsuit in California against a CBD company that had received a warning letter from the FDA in November of this year, alleging that they would not have purchased the company’s CBD products if they knew selling the items was illegal.7 The consumers claimed violations of a variety of California and Arizona consumer protection laws, including those related to breach of warranty and unfair competition. Other lawsuits have been brought because products did not contain the amount of CBD as represented on the label, or because the product claimed to not contain THC when it did.8
Cannabis companies have been subject to TCPA class actions as well. Florida’s largest medical marijuana company has been accused of spamming customers with unwanted texts in violation of the TCPA.9 A dispensary with multiple locations in Colorado was also the subject of a TCPA class action complaint in Florida alleging that it did not obtain prior consent from consumers prior to texting them.10
Cannabis is proving to be an attractive target for consumer protection litigation. However, companies can head off lawsuits by thoroughly vetting their marketing strategies with experienced consumer protection lawyers before going to market.
15 U.S.C. Sec. 45(a)(1).
See FTC Policy Statement on Deception, October 14, 1983.
Selling in a grey market isn’t for the faint of heart. You have to deal with the stigma surrounding your products and services, the potential for legal troubles, along with bureaucratic hurdles that all businesses face.
Acceptable marketing language surrounding consumable THC and CBD products encapsulates all of these issues, and it’s why everyone in the industry needs to pay close attention to what they’re saying. One innocent turn of phrase could have the Food & Drug Administration (FDA) shut down your business faster than you can say, “Oops.”
Avoiding this fate means making some adjustments to how you think about your marketing language, but this knowledge quickly becomes rote. Take a moment to learn how to protect yourself so that you can run your business rather than run afoul of the law.
Food, Drugs and Dietary Supplements
Scroll through Instagram for a few minutes and you’ll encounter a deluge of companies making claims about cannabis and CBD products. Many, if not most, are going about it incorrectly. Part of the confusion surrounds the fact that under the FDA’s rules, foods, drugs and dietary supplements are treated differently.
How does the FDA decide what’s what? Based on how you advertise the product. If labeling suggests the substance is “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, or is an “article” (other than food) intended to affect the structure or any function of the body of man or other animals,” the FDA will regulate it as a drug.
The language and regulations surrounding drugs are extremely strict. On December 20, 2018, the FDA put out a statement reiterating that these rules are in effect for cannabis products. In other words, you can only make a drug claim if you have received approval from the FDA on your New Drug Application (NDA). Since approval requires hundreds of millions of dollars worth of clinical trials, this option is out of reach for most companies.
The rule states that you may not say that your product diagnoses, cures, mitigates, treats or prevents any disease, or any recognizable symptom of a disease. Disease is defined as: damage to an organ, part, structure, or system of the body such that it does not function properly (e.g., cardiovascular disease), or a state of health leading to such dysfunction it (e.g. hypertension). Examples of diseases would include cancer, multiple sclerosis, epilepsy, autoimmune diseases, Lyme disease and more. In other words, you couldn’t say your product “prevents memory loss due to Alzheimer’s” or “treats symptoms of fibromyalgia.”
If you’re making any claims about curing anything in your cannabis business name, product name, packaging, web copy, advertising or marketing materials, you are at risk for breaking these rules and getting caught. The FDA’s regulations dovetail with the Federal Trade Commission’s truth-in-advertising laws, which state that your claims must be backed by legitimate research (such as peer-reviewed journal articles or double-blind studies) and must not mislead consumers. These rules are already being enforced within the cannabis industry, so pay close attention to what you’re putting out there.
However, you can’t avoid penalties by using this kind of language and claiming your product is a dietary supplement or food, either. According to the FDA, products that contain THC or CBD cannot be sold as dietary supplements. Their reasoning for this decision is that THC and CBD are active ingredients in FDA-approved drugs, such as Epidiolex and Dronabinol. Active ingredients in approved drugs may not be introduced into the food supply as dietary supplements or otherwise.
The language rules surrounding food can be equally complex. Foods approved by the FDA can make nutritional claims about how a nutrient impacts the structure/function of the body, such as “Calcium builds strong bones.” The problem for cannabis products is that these statements need to be authorized or qualified by the FDA and have significant scientific evidence and consensus. However, this consensus doesn’t exist for THC and CBD, meaning that you’re barred from making these kinds of claims.
Note that these rules don’t just apply to human supplements. They also apply to ones for pets. Many people don’t realize that a supplement for a pet is considered an “illegal drug of low regulatory concern.” But if you add in THC or CBD, a supplement becomes an illegal drug of—you guessed it—higher regulatory concern.
At a Loss for Words?
By now, you may be wondering what you can actually say to market your product; it may feel as though there are more restrictions than guidelines. Fortunately, the FDA hasn’t left us completely out at sea.
Just because we’re in a strange place under federal law operating our businesses every day doesn’t mean that we should disregard fundamental rules and regulations that all businesses must follow. The FDA published a final rule in the Federal Register in 2000 defining strict rules that govern the types of statements that may be used on a label without prior review of the agency. These are called structure/function claims. According to the FDA, “Structure/function claims may describe the role of a nutrient or dietary ingredient intended to affect the normal structure or function of the human body.” In contrast, statements that claim to diagnose, cure, mitigate, treat or prevent disease require prior approval by the FDA and are only for products that are approved drugs. Don’t use any of those words. Ever.
You can use the following words in your cannabis product names, advertising or marketing, as long as you’re not connecting them to a disease state: restore, support, maintain, raise, lower, promote, regulate, stimulate. You must specifically state that the claim relates to a non-disease condition; otherwise, you’ll be in trouble with the FDA. To go back to an earlier example, you cannot say that your product “prevents memory loss due to Alzheimer’s.” However, stating that your product “helps maintain a healthy brain” is fine.
Just because we’re in a strange place under federal law operating our businesses every day doesn’t mean that we should disregard fundamental rules and regulations that all businesses must follow. Following these rules does more than keep our enterprises out of trouble. It reinforces the idea that our industry is responsible, legitimate, and—perhaps most importantly—here to stay.
Mistake #5: Planning Just-In-Time Inventory Too Close to Production; Effecting On-time Deliveries
Using JIT (Just-In-Time) management is common throughout North America. JIT involves manufacturers and suppliers trying to minimize, or even eliminate, their inventory. This approach relies on suppliers to deliver materials just before production is started. When this method is done properly, it is a very efficient way to minimize production costs, but when companies do not prepare for a “crisis” situation, they will have nothing in stock to fall back on.
Minimizing inventory costs is always a challenge. It’s a never-ending contradiction trying to maintain low inventory costs while factoring the percentage of potential new growth. Calculations can fluctuate from month to month, especially when industries rely on commodity ingredients or are impacted by sudden regulatory changes like we see with the cannabis, food packaging, and health supplement markets. Front runners in these markets practice minimizing their product label inventories, but their needs might quickly change from one day to the next. They do not want to place a one-time annual label order for each SKU. If an ingredient runs out of supply or a regulatory change affects their production profile, they would be sitting on unusable labels that will go to waste.
Best Method Approach: Think in terms of what the bottom line effect will be when factoring how you should manage your inventory. Try not to reduce your inventory too low. This could cause your company to experience shipping delays when complications arise with suppliers or quality control. You should have at least one-to-two production cycles worth of inventory available for those “crisis” moments.
This backup inventory can also help reduce paying for excessive rush fees. Sometimes businesses can experience unexpected demand for a product, especially when companies consolidate production plants, acquire other companies, or have a new product launch. Supplier material shortages can greatly impact internal quality control and delay delivery times. Building a strong business relationship with your label provider is key to working around business demands and potential problems; which in turn, will help your label provider ship on-time deliveries so your production deadlines are met.
Mistake #6: Selecting the Lowest Price, But Approving the Wrong Materials for Your Product Needs
Sometimes clients buy the lowest priced labels without their procurement department knowing what the label specification requirements should be. It’s always a good business practice to shop for the best price, but it is equally as important to make sure you understand what you’re buying for that price.
Label providers vary on the quality of work they do, value-added services they offer, their production expertise, and the quality of material they use. Additionally, the hidden potential costs to lowest price shopping is that once the construction of those labels fail, it could cost you much more than a simple reorder.
Best Method Approach:Establish clear and concise procedures so your production team can forward the necessary criteria for your procurement department to have during the buying process.
brands want strong, eye-catching labels that stand out online, on the shelf, and/or on the retail floor. On a separate note, some businesses and manufacturers don’t care how long their brand and contact information remains on their product after the purchase. This gives them the flexibility to buy extremely low-quality material, but the outcome is a much lower brand awareness reminder at the end of the product’s use. But if your business model is such that you sell a “one-time use” product and all that you need is the label to survive through the POS, then the cheapest materials and lowest price might be your best solution.
In most cases, brands want strong, eye-catching labels that stand out online, on the shelf, and/or on the retail floor. Manufacturers want their labels to remain on their product, so their customers have a reminder of what they need to buy again or the ability to reread product use instructions and label warnings. Even if you don’t require the most expensive materials, using good quality, durable substrates and inks is always a solid approach.
Mistake #7: Not Preparing for Oil Based Products
One of the most popular products expected in retail for 2019 will be essential oils and/or CBD infused oil ingredients in foods, drinks, and wellness supplements. One of the most common mistakes relating to oil-based products is that entrepreneurs often forget that oils can soak into paper substrates and/or disperse certain inks, even when laminated.
Whether your product is on display in retail, or being sampled at a trade show, the last thing you want to be concerned about is your product name and contact information smearing or washing out. Even the smallest drop of oil can seep into a paper label and spread the ink to the point that you’ll have your own little tie-dye action on the label. That might look cool to some, but you lose your branding and the perception with most retail customers will be that your company is either cheap or is not professional.
Best Method Approach: There are affordable films such as polypropylene materials that will allow you to print the look you want while still protecting your branding and product. From cooking oils to industrial grade oils, the approach is the same but may require different types of films and ink solubility, so each bottle and container has oil resistant labels that maintain a professional look.Whenever one of our clients launch a new product or changes the intended surface conditions for label application, testing the label is always extremely important
If you’re feeling overwhelmed, remember that you don’t need to select all the label materials on your own. Your label provider should help you settle on the best solution.
Mistake #8: Not Properly Testing New Labels and New Product Surfaces
This is one of the most common and overlooked issues. Whenever one of our clients launch a new product or changes the intended surface conditions for label application, testing the label is always extremely important. This is especially critical when dealing with high quantity orders.
Best Method Approach: Testing parameters should be outlined by you and your label provider so both parties understand how long the label and the ink consistency should remain on the surface after purchase and use of product. There are wide variations of testing, so it will depend on the type of product and the intended industry.
For example, testing hand-applied, durable labels on powder coated metals for the boat and trailer industry require a completely different testing method compared to tests for typical food and beverage products that are machine applied. Usually, with uniform container products like food clamshell packaging, beverage cans, and supplement jars, all you will need to do is make sure to test labels on your production line, so your team is confident with the results.
In summary, preventing just one of these mistakes can yield huge cost savings no matter if your company is a start-up or a large corporation. Even if these eight common mistakes do not directly apply to your own issues, hopefully the “Best Methods” approach will give your company ideas about how you can prepare for future product releases, reduce product label issues, and improve your own quality control metrics.
If you have topics relating to product labeling that you would like me to discuss, please write to email@example.com. Be sure to save this article and forward it to your peers for future reference.
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