New Rules For Cannabis: The Coming Wave Of California False Advertising And Unfair Competition Claims

The cannabis industry in California should expect to see a sharp increase in false advertising and unfair competition claims in 2018. These claims will be premised on violation of the state cannabis regulations, but will be actionable under state consumer protection laws. There are many possible bases for such claims, including that the cannabis product at issue is misbranded or adulterated due to mislabeling, deficient packaging, inadequate manufacturing/packing conditions, actual contamination or numerous other technical violations of the regulations. Having a solid grasp of both the cannabis regulations and the unfair competition laws will help a cannabis business to fairly compete in the new cannabis marketplace and to avoid unwittingly committing expensive errors.

CALIFORNIA'S CONSUMER PROTECTION LAWS The state cannabis regulations provide ample fodder for opportunistic plaintiffs' attorneys to identify technical violations upon which to make consumer fraud claims based on alleged misbranded or adulterated products. California has powerful consumer protection statutes that have broad scope and a range of expensive remedies. The two primary statutes are California's Unfair Competition Law (UCL) and the Consumers Legal Remedies Act (CLRA). The UCL is codified at California Business & Professions Code §17200 and §17500. The CLRA is California Civil Code §1770.

The UCL prohibits any unlawful, unfair or fraudulent business act or practice and any unfair, deceptive, untrue or misleading advertising. The purpose of the UCL "is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services." The scope of the UCL is very broad, covering almost anything that can properly be called a business practice and is forbidden by law. The CLRA also is broad, protecting consumers from 23 activities that constitute unfair and deceptive business practices.

With respect to false advertising claims, the UCL and CLRA prohibit not only advertising that is false but also advertising that, although true, is either actually misleading or has the tendency to deceive or confuse the public. A true statement made in a manner that is likely to mislead or deceive the consumer (by failing to disclose other relevant information, for example) is therefore actionable. The state cannabis regulations contain very similar prohibitions on false advertising, discussed in greater detail below.

The UCL allows for monetary damages, restitution, disgorgement of profits and injunctive relief, including penalties of up to $6,000 per day for intentional violations of an injunction. Attorneys' fees and punitive damages are not recoverable under the UCL; the CLRA allows recovery of attorneys' fees, statutory damages and punitive damages.

MISBRANDING & ADULTERATION UNDER CALIFORNIA'S CANNABIS REGULATIONS Cannabis or a cannabis product may be considered "misbranded" or "adulterated" under the state regulations for many reasons. To avoid inadvertently becoming the target of an expensive consumer fraud claim, it is essential for all cannabis manufacturers and retailers to understand their legal obligations...