Ian A. Stewart Partner

While the cannabis industry faces legal risks similar to those of the supplement industry post-1994, cannabis industry has made enormous progress in self-regulation. Nevertheless, cannabis businesses may be confronted by an increasing product liability exposure as the market and the science continue to mature in tandem.

The California Privacy Rights and Enforcement Act goes into effect in January 2023. Although this controversial ballot measure was meant to expand and make permanent the consumer protections within the California Consumer Privacy Act of 2018 (CCPA), privacy groups have expressed concern that the new law will place an unnecessary burden on businesses that are only now learning how to properly comply with the CCPA and that it may actually reduce consumer rights in important ways.

Members of Wilson Elser’s Cannabis Law team Ian A. Stewart (Partner-Los Angeles) and Neil M Willner (Associate-White Plains) collaborated with the firm’s Appellate Practice Chair Melissa A. Murphy-Petros (Of Counsel-Chicago) to draft an amicus brief to the U.S. Supreme Court in the publicized case of Washington v Barr, which seeks to invalidate marijuana's Schedule I status under the Controlled Substances Act on constitutional grounds.

A new interim rule issued by the Drug Enforcement Administration states that all hemp derivatives or extracts that exceed 0.3% delta-9 THC remain schedule I controlled substances. This clarification may potentially create a profound practical obstacle to the legal manufacturing of most hemp-derived CBD products, since hemp extract almost invariably exceeds 0.3% delta-9 THC concentration at some point during the extraction process before it is brought back into legal compliance for the final product.

While cannabis litigants may be forced to appear in federal court, there are steps that may lessen the chances of a federal court invalidating cannabis contracts and other important rights. The author also explores a spectrum of enforceability for cannabis-related disputes in the federal courts.

California's Prop 65 now identifies THC as a chemical that may cause reproductive harm and no “safe harbor” level has yet been identified, meaning that any detectable amount of THC in a product sold in California requires a compliant Prop 65 warning. This new rule is effective and enforceable as of January 3, 2021. Cannabis and CBD companies should start planning now to mitigate this risk.

Some hemp-derived products contain amounts of THC comparable to state-regulated marijuana consumer products, which are still illegal under federal law and highly regulated by states with adult-use and medical cannabis programs. Do these new products impermissibly exploit a legal loophole or are they the first THC products that legitimately fall outside the Controlled Substances Act?

Federal policy regarding enforcement of the Controlled Substances Act has shown ambivalence where the possession and distribution of marijuana is consistent with well-regulated state law. Some federal courts, however, take a nuanced but strict position with respect to enforcement of cannabis-related contracts and other rights by evaluating whether enforcement would require the litigant to actively violate the Act. This brings into question where the line is drawn for enforcing a contract in federal court, and has deep implications for every cannabis stakeholder.

Many workplaces that traditionally have had few recordable or reportable work-related illnesses must now educate themselves on their obligations under federal and state health and safety laws or face expensive fines from regulators and greater exposure to workers’ compensation claims and liability lawsuits. By preparing an infectious disease preparedness and response plan, the employer will engage in the necessary exercise of creating clear lines of communication, identifying where and how workers might be exposed and implementing workplace controls. Performed properly, this exercise should result in better workplace morale, lower absenteeism, less business disruption and liability defenses if needed.

When confronted with crisis conditions and medical equipment shortages, medical professionals should be allowed flexibility to provide real-time solutions to complicated medical decision-making – within a crisis standards of care framework that incorporates elements of fairness, transparency, consistency, proportionality and accountability, consistent with AMA and state guidelines.

The U.S. Food and Drug Administration recently released a report that outlines a variety of actions taken or being considered by the FDA to advance the potential regulatory pathways for CBD, including “the agency's progress toward obtaining and analyzing data to help determine a policy of enforcement discretion and the process in which CBD meeting the definition of hemp will be evaluated for use in products.”

The Food and Drug Administration has not attempted to make any distinction between highly concentrated CBD isolate versus “full-spectrum” hemp extracts that contain numerous cannabinoids, including CDB, at lower concentrations. The form of CBD nevertheless should be an important consideration when evaluating a product’s legality as a food additive or dietary supplement under the Food, Drug and Cosmetic Act.

Labels on most cannabis products focus on THC and CBD concentration to the exclusion of other potentially potent cannabinoids. The newest identified cannabinoid, THCP (tetrahydrocannabiphorol), is many times more potent than THC.

With more than 120 identified cannabinoid compounds found in the plant genus Cannabis, it’s all but certain that products based on cannabinoids other than THC and CBD will become better known. The two most likely contenders are cannabigerol, or CBG, and cannabinol, or CBN.

The mothers of two former youth football players, each of whom died in their mid-twenties a decade after they last played youth football, sued for money damages and to enjoin advertising that “youth tackle football is safe for minor children.” In a decision of first impression, the U.S. District Court for the Central District of California granted Pop Warner Football’s motion for summary judgment against negligence and wrongful death claims.

The U.S. Department of Agriculture’s interim final rule for its Domestic Hemp Production Program, which was unveiled on October 31, 2019, has caused concern with several issues critical to the hemp and CBD industries, including what constitutes acceptable testing and sampling procedures. The interim rule states that all testing shall be performed by DEA-certified labs and that a failed test from a distinct lot may invalidate the entire harvest, which would cause major income losses for producers.

Despite the FDA’s ongoing prohibition of CBD in ingestible products, a statement just released by federal banking regulators provides some clarity on the legal status of commercial hemp and the legal obligation of banks that will greatly assist with the fluid growth of the wider hemp industry.

Laboratory testing of fluid collected from the lungs of 29 patients with EVALI submitted to the Centers for Disease Control and Prevention from 10 states found vitamin E acetate in all of the fluid samples. CDC reports that “this is the first time that we have detected a potential chemical of concern in biologic samples from patients with these lung injuries.”

The plaintiffs in Archie v. Pop Warner, USDC CD CA 2:16-cv-06603, sought class certification of “all persons who enrolled their minor children in Pop Warner tackle football from 1997 to present” for statutory unfair competition and false advertising claims under the California consumer protection statutes. The U.S. District Court for the Central District of California denied plaintiffs’ motion to certify the class.

With a viable case now before the courts, manufacturers of state-licensed and regulated cannabis products, including THC vape products, widely support meaningful regulation that would help to prevent health problems caused by illicit and unapproved products.

Use of a “one size fits all” CBD label is a bad idea because no single label is compliant with the different requirements of all states that presently allow the sale of ingestible CBD products. A CBD company also should be prepared to respond quickly to changes in state CBD laws, which may require label changes or withdrawal from the state market on short notice.

The USDA’s recent opinion is an important development that should go a long way toward resolving any lingering doubt that 2014 Farm Bill−compliant hemp and hemp-derived products are legal in interstate commerce, and may be persuasive to the Ninth Circuit Court of Appeals as it considers the release of a seized shipment of hemp confiscated in January.

No matter how a company chooses to participate in the CBD industry, it must be counseled on FDA regulatory risk based on the product type in addition to the risks of marketing and selling CBD products on a state-by-state basis. Because the legality of CBD products varies widely by state and is changing so rapidly, providing a concise analysis of critical CBD legal and risk management issues can be a challenge.

Advising companies on CBD risk management is challenging due to the rapid pace of developments and frequent confusion caused by often false or misleading online information. In this article, Ian Stewart outlines the critical CBD legal and risk management issues to watch.

In a recent press release, outgoing FDA Commissioner Scott Gottlieb reinforced the FDA’s position that it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD and THC dietary supplements. While the availability of CBD products dramatically increased over the past several years, many unanswered questions and potential health risks remain.

FDA Commissioner Scott Gottlieb’s resignation came only days following his testimony before the House Appropriations Committee regarding the FDA’s regulatory plans for CBD (cannabidiol). Congress also heard testimony from the Secretary of the U.S. Department of Agriculture on the status of industrial hemp cultivation pursuant to the 2018 Farm Bill.

The New York City Department of Health and Mental Hygiene announced that “restaurants in New York City are not permitted to add anything to food or drink that is not approved as safe to eat … Until cannabidiol (CBD) is deemed safe as a food additive the Department is ordering restaurants not to offer products containing CBD.”

Whatever one’s position on California Section 5032, there is no disputing it will serve to disrupt the current California cannabis market and cause many existing business relationships to change or cease. While the industry waits for clarity, the prudent course is to embrace full disclosure.

Ultimately, the new federal protections contained in the 2018 Farm Bill will move the CBD-based food and supplement industry closer to unrestricted national and international distribution of hemp-derived CBD products. Until approved by the FDA, however, CBD as an ingredient in foods and supplements will continue to be risky.

U.S. Customs and Border Protection officials have broad powers, and the U.S. Constitution’s Fourth Amendment protections against unreasonable search and seizure are lessened at the borders. CBP also has broad access to publicly available information as well as other information from U.S. government and state government sources.

As Canada draws ever closer to October 17, 2018 – the date on which the Cannabis Act comes into force and recreational or other adult-use cannabis is set to be unveiled across Canada – complex regulatory issues continue to cloud the celebrations, including individuals working or investing in the Canadian cannabis sector being turned back at the U.S. border – or worse.

Until a reliable marijuana-impairment standard is developed, relevant stakeholders must be educated on the unique toxicology of cannabis and how it differs from alcohol, as well as the lack of any scientific basis for state driving laws that rely on THC limits, which do not closely correlate with impairment.

Unlike any other agricultural business, cannabis cultivators that use pesticides are faced with the dangerous nexus of inadequate federal research and oversight, rapidly evolving state regulations, onerous testing standards and high levels of potential legal liability.

Cannabidiol (CBD) now may be legally distributed, sold, imported or exported without restriction so long as it is from properly sourced industrial hemp, but CBD may be added to food products only if it is derived from marijuana. It is difficult to logically reconcile this “schizophrenic” state of the law.

To comply with California’s Cannabis Track and Trace METRC system, business operators must maintain a large amount of valuable data throughout the cannabis life cycle and down the supply chain, increasing the risk of liability in the event of a cybersecurity incident. Cannabis companies would be wise to consider implementing additional best practices to decrease their exposure to data security threats.

 

The guidelines California and other states have issued regarding the recommending of cannabis for medical conditions serve as a starting point for the discussion surrounding the standard of care by creating baselines and establishing routine practices by which physicians can familiarize themselves with the requirements of the changing world of medicine and incorporation of cannabis as a modern treatment for their patients’ conditions.

A high-profile cannabis consumer class action was filed in Los Angeles on May 10, 2018, and it is expected that many more are on the horizon. Although class actions that assert breach of express and implied warranties, negligent failure to warn and violation of cannabis laws will be difficult to avoid as the California cannabis market expands, a well-informed licensee may nevertheless effectively mitigate its risk through vigilance and by instituting best practices consistent with the regulations.

Allegations of false advertising often are uninsured claims, leaving a business on its own without cover. Fortunately, instituting best advertising and marketing practices consistent with California’s regulations should mitigate most risks associated with an expensive lawsuit.

The California Bureau of Cannabis Control has adopted licensing regulations for commercial cannabis businesses, including those that transport cannabis product throughout the state. However, licensing delays and other issues, including federal involvement, have made the current distribution process more cumbersome and potentially riskier for distributors.

As California’s cannabis market expands, businesses will find it very difficult to avoid claims premised on violation of California’s new cannabis regulations but actionable under the state’s Unfair Competition Law and the Consumers Legal Remedies Act. However, a well-informed licensee may effectively mitigate its risk through vigilance and the institution of best practices consistent with the regulations.

On November 16, 2017, the Los Angeles City Council released two draft ordinances adding Article 4 to Chapter X of the Los Angeles Municipal Code to regulate cannabis in the City of Los Angeles. These revised ordinances were read at a Rules Committee hearing on Monday, November 20, 2017, and approved as amended by a full Council vote. Notably, the ordinances provide guidelines for procurement of licenses at the City level in furtherance of State law requiring city approval to obtain a California license.

The production, distribution and sale of an ingestible product that has psychoactive effects will certainly result in robust product liability litigation. Public policy supports the requirement that participants in the cannabis industry have liability insurance because there is a strong public policy in favor of compensating those who suffer compensable injury. In addition, private insurance regimes often provide excellent loss prevention services directly and indirectly by their underwriting practices. Finally, liability insurance provides stability to industry participants.

Prop 65 was passed by California voters in 1986 after an aggressive lobbying campaign by environmental and public health activists with the intent to improve public health. The general consensus, however, is that Prop 65 has placed an undue burden on California businesses while achieving no significant impact on public health over the past 30 years. 

While the plaintiffs in a recent lawsuit challenging the constitutionality of the Controlled Substances Act as it pertains to cannabis make some compelling arguments, it will be difficult to convince the federal court of its merits. Success by the plaintiffs, however, will have significant consequences for the cannabis industry by allowing it better access to banks, interstate commerce, tax deductions and other protections enjoyed by the legal market. 

On May 22, 2017, California Insurance Commissioner Dave Jones led a teleconference with 63 insurance industry stakeholders to discuss insurance requirements set forth in California’s proposed cannabis regulations. He stated: “The department has an important role to play as new industries emerge and the market adapts to meet the changing needs of all insurance consumers.”

The development of new technology that provides an objective measurement of cannabis intoxication, such as mouth swab test kits that detect the presence of six legal and illegal drugs, is a critical step needed to ensure public safety and instill confidence in the legalized marijuana industry.

The California Central District Court has concluded that certain provisions of the California Resale Royalty Act (CRRA) are preempted by the Copyright Act of 1976. As a result, the court eliminated a provision of the CRRA that could have incentivized collectors and auction houses to relocate outside California to avoid its resale restrictions. In addition, the court drew a distinction between direct sellers and online platforms, which could hold increasingly significant implications as forums for the sale of fine art transition to online and virtual platforms.

A recent decision by the European Union Court of Justice will likely have tremendous consequences for the cross-border trade in data between U.S. companies and EU citizens. No longer will U.S. companies be able to rely on Safe Harbor program participation and self-certification as a layer of protection when handling the data of EU citizens.

California has adopted the California Electronic Communications Privacy Act, which provides a degree of parity between digital and physical records in the protection against unlawful searches and brings California back to the forefront of digital privacy legislation.

Amendments to California’s Data Breach Notification Statute will take effect on January 1, 2016. Important changes to the existing law include new requirements for security breach notification through the use of prescribed headings in the notification letter and certain amended definitions. This amendment applies to all persons and businesses that conduct business in California and to all California governmental agencies.

If adopted by the High Court of Ireland, a decision issued by Advocate General Yves Bot of the Court of Justice of the European Union would eliminate the safe harbor from EU privacy law afforded to U.S. companies under Decision 2000/520. Eliminating safe harbor could leave U.S. companies in a state of uncertainty and require them to take a long hard look at the EU’s onerous compliance requirements.

Businesses in 2015 have become enthralled by virtually unlimited access to customers and business partners via online platforms. Unfortunately, many have focused on the potential profits arising from such undertakings without sufficient consideration for the problems that too frequently arise.

In an opinion issued on January 22, 2015, the Fourth District Court of Appeals left the door open for an insured in a multi-carrier insurance coverage case to attempt the allocation of settlement monies away from defense costs and essentially “pocket” settlements – attributing them to Brandt fees – while continuing its efforts against non-settling carriers.

The California Third Appellate District  recently overturned a lower court’s denial of a motion to dismiss a class action lawsuit seeking $4 billion in damages under California’s Medical Confidentiality Act due to the alleged disclosure of medical records. The Appellate Court specifically held that the mere theft of medical records without any allegations that an unauthorized person viewed these records is insufficient to state a claim.

On July 3, 2014, the California Supreme Court held that, based on common law principles, an architect owes a “duty of care” to future homeowners in the design of a residential building. To what extent the design professional must assume a role of principal architect or become involved in the construction phase before a duty will run to the ultimate purchaser of the condominium remains an open question.

A recent California Court of Appeal case confirms the limited duty of an insurance broker only to use reasonable care, diligence and judgment in procuring the insurance requested by an insured. The court rejected arguments that the duty of an insurance broker to its client should be expanded for policy reasons.

The California Court of Appeals (Fourth District) has held that the Right to Repair Act does not provide the exclusive remedy to homeowners in cases where actual damage has occurred because of construction defects, thereby upholding a homeowner’s common law rights and remedies to seek actual damages despite noncompliance with the terms and conditions required for relief under the Act.

This decision limits recovery of past medical expenses to the amount paid for services, refuting the argument that a cap should not apply where payments have been made by Medicare or Medi-Cal. In short, a plaintiff may recover only what he has lost – and no more. 

The California Court of Appeal held that design professionals owe a duty of care to condo homeowners for professional negligence. The California Supreme Court recently granted a petition to review, which renders the Court of Appeal opinion void and under California rules it may not be cited as authority.

Estimated at between $56 million and $85 million, budget cuts will impact the amount of time it takes to bring matters before the courts. . With as many as ten courthouses in Los Angeles County closing, congestion will slow the court’s entire caseload.

The California Court of Appeal affirmed a lower court decision that bystander liability is allowed only in cases where the plaintiff was able to observe the event and perceive that the defective product was the cause of pain or injury to their relative. While noting that the lines restricting bystander recovery are “arbitrary,” the Court of Appeal stated that, nevertheless, those lines are binding.  

California’s First District Court of Appeal finds common law and statutory duties extend from design professionals to ultimate purchasers of residential construction. Despite the extensive analysis by the court, there remain open questions regarding the extent of the duty of care of design professionals to ultimate purchasers.

While a California Appellate Court extended the “completed and accepted” doctrine to architects’ field operations, it limits application of the doctrine to patent defects and activities in the field – the doctrine does not apply to claims of error in the development of plans and specifications.

California’s governor has signed Assembly Bill 1875, which limits the length of depositions in civil cases. The new law will go into effect on January 1, 2013.

In Pinnacle Museum Tower Association v. Pinnacle Market Development, the California Supreme Court’s opinion demonstrates a strong public policy in favor of the mandatory arbitration of disputes. This case has clear implications regarding the enforceability of mandatory arbitration provisions in many other areas as well.

A recent California Supreme Court decision reaffirmed the need for clients to communicate with counsel early concerning the investigation conducted after an accident. The attorney can then direct the necessary investigation and analyze the manner in which witness information should be obtained to provide the necessary work product protection should the matter result in litigation.

In Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Insurance Services West, Inc., a case of first impression, the court held that an insurance broker, after procuring a policy of insurance for a developer on a construction project, does not owe a duty to apprise a subcontractor that was later added as an insured under that policy of the insurance company’s subsequent insolvency, absent the assumption of a contractual duty to do so.

Legal Insights has published two articles by California-based Wilson Elser attorneys in its winter 2012 issue.

SB 474, recently signed into law by Governor Edmund G. Brown, Jr. bans so-called “Type I” indemnity agreements that require subcontractors to assume liability for general contractors’ negligence.

In the recent cases of Crawford v. Weather Shield Manufacturing, (2008) 44 Cal. 4th 541, and UDC-Universal Development Company LP v. CH2M Hill, (2010) 181 Cal.App.4th 10, California appellate courts have upheld a design professional's contractual defense obligation, even in the absence of any finding of negligence by the design professional.

On January 12, 2010, Governor Arnold Schwarzenegger announced that the California Building Standards Commission unanimously adopted the first-in-the-nation mandatory Green Building Standards Code (CALGREEN).  These mandatory building regulations will apply to all new construction in California including, but not limited to, all residential and commercial buildings.  The CALGREEN Code will take effect on January 1, 2011, and will become the baseline for regulating green construction statewide.