CBD Health Claims Raise FTC’s Hackles (and Prompt Class Action Suits)

Near the end of 2020, in mid-December, the Federal Trade Commission (FTC) launched what it referred to as “Operation CBDeceit,” a law enforcement sweep challenging allegedly unproven representations that CBD products could treat diseases and serious medical conditions such as cancer, diabetes, Alzheimer’s disease and more.           

At the same time, the FTC announced proposed settlements with six companies that it asserted marketed gummies, lozenges, oils, balms and other products containing CBD to prevent or treat serious diseases and health conditions.

Throughout 2020, however, the FTC also sent numerous warning letters to companies selling or distributing CBD products, instructing them to refrain from making unsubstantiated health claims. Although the pandemic diverted the FTC’s attention to products claiming to prevent or cure COVID-19, it seems likely that 2021 will, once again, see the FTC focusing on CBD-related health claims.

While Warning Letters alerting companies to potential violations and allowing for an opportunity to take corrective action prior to commencement of a formal enforcement action have been commonly used by the Food and Drug Administration (FDA) for decades, they are a relatively new phenomenon at the FTC.  As with those from the FDA,  warning letters from the FTC must not be disregarded; they are basically a free bite at the apple.  Violations of the FTC Act may result in the FTC instituting legal action seeking a federal district court injunction or an administrative cease-and-desist order, which may require that a company refund money to consumers. In the case of serious ongoing fraud or where there is a risk of consumer injury, the FTC can also refer cases to local United States Attorneys’ Offices or State Attorneys General for criminal prosecution.

Moreover, numerous class action lawsuits have been filed recently against CBD companies, often piggybacking or relying on FTC claims or standards. We can expect these private lawsuits to continue – and perhaps even to grow substantially in number – in 2021.

The Law

The FTC Acts prohibit unfair or deceptive advertising. Specifically, the FTC Act makes it unlawful to advertise that a product can prevent, treat or cure human disease unless the advertiser possesses competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies substantiating that the claims are true at the time they are made.

This substantiation requirement applies whether an advertiser disseminates health claims directly via traditional advertising or indirectly via the use of a product name, website name or metatags.

This requirement also extends to consumer endorsements; it is not enough that an endorsement represents a consumer’s honest opinion or experience.  Testimonials are treated as claims by both the FDA and FTC.  As such, an advertiser must possess and rely on competent and reliable scientific evidence to support health claims, both express and implied, made through the use of endorsements.

CBD Warnings

In a variety of warning letters, the FTC has recently challenged a broad range of CBD-related health claims as being false or not substantiated by competent and reliable scientific evidence.  The companies sell different products, but a common theme in their advertisements is the emphasis on CBD as a treatment or cure for serious diseases. Some of the ads even specified medical conditions such as Alzheimer’s, multiple sclerosis, epilepsy, heart disease and stroke.

The gist of the FTC’s warning letters was that the companies should review their product promises – including representations conveyed through testimonials about the health benefits of products containing CBD – to ensure they were backed up by competent and reliable scientific evidence. Like any other advertiser, CBD sellers that make unsubstantiated health claims could be subject to law enforcement.

Labeling

Advertisers not only must avoid making unsubstantiated health claims for their CBD products, they also should not mislabel them, or risk a warning letter from the FTC and potential liability under the Federal Food Drug & Cosmetic Act (FD&C Act). There also is the risk of liability under state labeling laws as well.

In one recent case, the FTC’s warning letter asserted that “CBD Salve” and “CBD Oil” products were drugs under the FD&C Act because they were intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease and/or because they were intended to affect the structure or a function of the body.

The FTC noted that the “CBD Oil” products were not labeled as dietary supplements, but that the directions for use began with the phrase “[a]s a hemp supplement.” In the FTC’s opinion, based on this language, it appeared that the company “may intend to market [the] product as a dietary supplement.” The FTC declared, however, that it could not be a dietary supplement because it did not meet the definition of a dietary supplement under the FD&C Act.

The FTC explained that the Food and Drug Administration (FDA) has concluded based on available evidence that CBD products are excluded from the dietary supplement definition of the FD&C Act. Under those provisions, an active ingredient approved under the FD&C Act or authorized for investigation as a new drug, then products containing that ingredient fall outside the definition of a dietary supplement. The FTC pointed out that the FDA was not aware of any evidence to challenge its conclusion that CBD products are excluded from the dietary supplement definition under the FD&C Act.

The FTC also noted that the product labeling stated that the “CBD Oil” products were intended to be taken sublingually. It then explained that the term “dietary supplement” is defined in the FD&C Act as a product “intended for ingestion.” Because sublingual products are intended to enter the body directly through the skin or mucosal tissues, they are not intended for ingestion and, the FTC reasoned, this was an additional reason the “CBD Oil” products did not meet the definition of a dietary supplement under the FD&C Act.

According to the FTC, as “new drugs,” they could not be legally introduced or delivered for introduction into interstate commerce without prior approval from the FDA, as described in the FD&C Act.

COVID-19

For much of this past year, the FTC has been particularly attentive to claims that products can prevent or cure COVID-19, including when the product is a CBD-based item.

Several months ago, the FTC sent a warning letter to a California CBD company regarding what the FTC characterized as “unsubstantiated claims for Coronavirus treatment or prevention.”

The FTC’s warning letter indicated that FTC staff had reviewed the company’s website and Facebook page and determined that the company was “unlawfully advertising that certain products treat or prevent . . . COVID-19.” As an example of a COVID-19 treatment or prevention claim, the FTC cited the following:

Have you heard the great news?!?!?! CBD is being researched as a possible preventative and active treatment for COVID-19. Researchers at the University of Lethridge in Canada have discovered that CBD may inhibit the SARS-COV-2 Virus from entering human cells by binding with or altering the S-protein that gives the virus access to our bodies.

The FTC explained that it is unlawful under the FTC Act to advertise that a product can prevent, treat or cure human disease unless the advertiser possesses competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies, substantiating that the claims are true at the time they are made. It then stated, “For COVID-19, no such study is currently known to exist for the products identified above.” Thus, the FTC’s letter concluded, “any coronavirus-related prevention or treatment claims regarding such products are not supported by competent and reliable scientific evidence” and the advertiser “must immediately cease making all such claims.”

It is important to keep in mind that COVID-19 claims need not be expressly stated. An ad highlighting a blue or red ball with spikes, symbolizing the virus itself, may be just as much of concern to the FTC as stated assertions of health benefits. And given the ubiquitous nature of that symbol, it may even generate more objections by the FTC.

Class Actions

FTC warning letters are not the only legal problems potentially facing CBD companies based on their advertising, promotional and labeling activities. The underlying basis of the FTC warning letters against these businesses has led to a spate of class action lawsuits filed against CBD companies, typically asserting claims stemming from the products’ marketing and advertising and alleging fraud, false advertising, deceptive trade practices and the like.

While these actions generally remain in their early stages, defending a class action can involve a significant expenditure of executive and employee time and financial resources. Following FTC rules can help to lower the risk of a private class action lawsuit being filed.

Conclusion

As Operation CBDeceit and the other FTC actions discussed above should make clear, there are significant risks for companies that make unsubstantiated health claims about CBD products. Given the FTC’s close scrutiny of those assertions, companies should be dissuaded from making those claims – but they should not necessarily be dissuaded from selling their goods.

By now, consumers already perceive the benefits of CBD, and it may be that all that needs to be said is that a company has CBD products available for purchase, and all that needs to be done is to properly label and package those products, to see customer orders flowing in.