In December 2020, the Federal Trade Commission (FTC) announced proposed settlements with six CBD companies accused of making a wide range of unsubstantiated health claims, including that CBD is cancer, heart disease, high blood pressure, Alzheimer’s disease, bipolar disorder, and chronic Can treat pain, among others. Nicknamed “Operation CBDeceit”, the enforcement action was part of the FTC’s ongoing efforts to protect consumers from false, misleading and misleading health claims made in advertisements on websites, social media and other platforms. These settlements became final in early March 2021.
For those who have overseen regulatory enforcement regarding CBD claims, the types of claims listed in the FTC’s complaints are known. Previous enforcement by the FTC and the Food and Drug Administration (FDA) focused on products that contained information on the treatment of chronic diseases and health conditions that resembled the information in the “Operation CBDeceit” settlements. In this respect, these comparisons do not differ from the previous enforcement.
However, in other ways, these comparisons differ from the previous FTC enforcement of CBD claims. With the involvement of multiple companies and the announcement of all settlements at the same time, the announcement was coordinated by CBDeceit to send an authoritative message to the CBD industry. By and large, the law requires companies to have solid evidence known as “competent and reliable scientific evidence” to support their health claims, a standard that applies to health claims for all consumer products.
In these settlements, not only the company is named as a respondent, but also individuals in their official capacity as executives. Given the significant amount of entrepreneurial activity in the CBD and hemp industries, this should be taken as an indication that the FTC will attempt to hold individuals liable to ensure compliance with the settlement agreement, especially if the company being interviewed is only made up of some people . In addition, five of the six settlements included monetary components in the range of $ 20,000 to $ 85,000 that will be used to reimburse consumers, known as “reparations.”
The companies surveyed are also obliged to inform consumers about the billing according to the prescribed conditions. For example, the Easybutter LLC agreement requires the company to post a notice on all of its social media accounts (including any Facebook, Twitter, Instagram, or YouTube accounts) and on the first page of its websites. This notice must be linked to a copy of the Consent Ordinance (Settlement Agreement) along with a toll-free phone number and email address for the Legal Protection Administrator. The notification must be published no later than three days after the effective date of the order and at least one year after the end of the redemption period. In addition, companies must use a form attached to the consent forms to directly inform consumers who have purchased their products about the FTC’s fees. This reporting requirement differs from the vast majority of FTC comparisons with health claims.
What does that mean? While these comparisons haven’t broken new ground in terms of the kind of claims regulators are targeting regarding CBD products, they do signal heightened awareness of an industry that has grown exponentially in recent years. Health claims have long been of interest to the FTC. Given that and the transition to the Biden government, the CBD industry should expect more settlements like this one in 2021.
For those new to the CBD industry or unfamiliar with advertising rules, this explainer provides additional context for understanding Operation CBDeceit.
Who is the FTC?
The FTC is the federal agency whose job it is to protect consumers from unfair and misleading practices in the market, including through advertising.
What role does the FTC play in the CBD / hemp market?
The role of the FTC in the CBD / Hemp market is to protect consumers from unfair and misleading acts and practices. In the CBDeceit cases, the FTC claimed that the companies claimed that their CBD products could treat or prevent a number of chronic diseases and conditions, but that the companies did not have sufficient evidence to support those claims. Because of this, the FTC found the claims to be misleading. In order to solve the enforcement problems, each of the companies agreed to an agreement, the basic terms of which are discussed below.
Is this the first ever FTC enforcement by a CBD company?
No, but Operation CBDeceit is the most significant and coordinated FTC enforcement in the CBD space. Previously, the FTC, together with the Food and Drug Administration (FDA), had issued warning letters to companies whose products contained aggressive health claims. An agreement was also reached in July 2020 with a CBD seller, Marc Ching, referring to claims that CBD products “could treat, prevent or reduce the risks of COVID-19”. The FTC also claimed that there was a lack of sufficient evidence.
Is FTC Enforcement Comparable to FDA Enforcement for CBD?
Yes and no. FTC enforcement is like the FDA’s enforcement of CBD products in that both agencies are concerned that consumers are using untested and undetected CBD products to treat or attempt to treat serious diseases and conditions, and potentially refrain from conventional medical treatment. The FTC enforcement differs from the FDA enforcement for CBD products in that the FTC does not examine whether the products in question can be legally sold as dietary supplements, foods, beverages, etc. Enforcement by the FTC in Operation CBDeceit is focused on whether the product claims are misleading under the law.
In addition, the FTC enforcement differs from the FDA’s CBD warning letters in that the parties to the FTC settlements must adhere to the settlement terms for twenty years. If they violate the regulations, the FTC can charge them with a violation and seek civil penalties of up to $ 43,792 per violation.
There are many companies making similar claims. Why did the FTC target these companies?
We don’t know why the FTC targeted these specific companies. It is often the case that there are many companies making similar claims and the FTC, like all law enforcement agencies, will prosecute some but not others. Given the complaints, it should be noted that the companies are similar in that they all claimed that their products could treat or prevent serious health problems or illnesses, including the fact that CBD is safe for all users and treats pain better than prescription drugs like OxyContin. and is able to prevent or treat a wide range of serious diseases, including cancer, diabetes, cognitive decline, autism, schizophrenia, substance abuse, and AIDS. The FTC alleged that none of these claims were well founded.
However, companies differ in the range of health conditions or diseases that they claimed could be treated with CBD. It is possible that the FTC has attempted to demonstrate the wide range of false claims made in the CBD market.
What were the details of the settlements these six companies agreed to with the FTC?
For each informed consent, companies must have competent and reliable scientific evidence when making other health-related product claims and are prohibited from making more than one of the claims in question without human clinical testing to substantiate the claims. As mentioned above, these comparisons name not only the company as respondents, but also individuals in their official capacity as company offerings. Five of the six settlements contained cash relief between $ 20,000 and $ 85,000. In addition, companies are obliged to inform consumers about the comparisons. Although the terms of this notice vary, most companies require companies to post the comparison on both their websites and social media accounts and send a form letter to consumers who have purchased their products about the allegations Inform FTC.
What is the main lesson CBD, hemp, and cannabis companies should learn from these enforcement measures?
The main finding is that health claims require solid justification in order to be properly endorsed. The law stipulates that companies must have competent and reliable scientific evidence at their disposal when making health-related claims. In plain English, this is a quantity and quality of evidence sufficient for experts in the field to agree that it is sufficient to support the claim, which is a very high bar. Health claims are usually clinical tests of the ingredients or the finished product. Given the investment required to conduct clinical product testing, many companies choose to market testimonials only to convey their product benefits. However, testimonials alone are not considered reliable grounds for claims.
In addition, companies should expect such enforcement in the coming year. Enforcement of misleading health claims has long been a priority of the FTC and is likely to continue to do so.
Kristi Wolff is a partner at Kelley Drye & Warren and chairman of the firm’s cannabis law firm. Her legal practice focuses on promoting food, medicines, nutritional supplements and health products to consumers. As an internal consultant, Ms. Wolff is particularly geared towards balancing business goals with legal considerations.