United States: Federal Trade Commission’s CBD Crackdown: Something Old And Something New

United States:

Federal Trade Commission’s CBD Crackdown: Something Old And Something New

23 December 2020

Kelley Drye & Warren LLP

FTC’s CBD Crackdown: Something Old and
Something New

This week the FTC
announced settlements with six companies accused of making
a broad range of unsubstantiated health claims, including that CBD
can treat cancer, heart disease, hypertension, Alzheimer’s
disease, bipolar disorder, and chronic pain, among
others. Nicknamed, “Operation CBDeceit,”
the enforcement sweep is part of the Commission’s ongoing
effort to protect consumers from false, deceptive, and misleading
health claims made in advertisements on websites and through social
media companies such as Twitter.

For those who have been monitoring regulatory enforcement
relating to CBD claims, the types of claims listed in the
FTC’s Complaints are familiar reading. As we’ve
chronicled
here,
here, and
here), prior FTC and FDA enforcement have focused on aggressive
express health claims that were very similar to the claims at issue
in today’s settlements. In that respect, these
settlements do not differ from prior enforcement.

This announcement is noteworthy for other reasons, though,
including the following:

• Bigger Than Before. This is the
  first big FTC enforcement announcement regarding CBD health claims
  involving settlements with multiple companies. Prior to this,
  the FTC coordinated with FDA on dozens of warning letters relating
  to CBD and false COVID treatment and prevention claims in addition
  to other CBD warning letters. The FTC also announced a
  settlement with
  Marc Ching regarding the “Thrive” CBD
  supplement in July 2020 relating to claims that the product
  could “treat, prevent, or reduce risks from
  COVID-19”. Yesterday’s announcement seemed
  intended to convey a more coordinated and authoritative message
  than prior settlements and warning letters.
• Individual Liability. These
  settlements also name not just the company as a respondent, but
  also individuals in their official capacity as corporate
  officers. Given the significant degree of entrepreneurial
  activity in the CBD and hemp industries, this should be understood
  as an indication that the FTC will look to hold individuals liable
  particularly where the respondent company is comprised of only a
  few people.
• Monetary Relief. In addition, five
  of the six settlements included monetary components ranging from
  $20,000 to $85,000. The Marc Ching settlement did not involve
  a financial component, although it is not unusual for there to be a
  financial component where the FTC believes that the conduct
  warrants it.
• Prescribed Consumer Notification.
  The respondent companies are also required to notify consumers
  about the settlements per prescribed terms. For example, the
  Easybutter, LLC, settlement requires the company to provide a
  notice on all of their social media accounts (including any
  Facebook, Twitter, Instagram, or YouTube accounts) and on the first
  page of their websites. Such notice must link to a copy of the
  Order, along with a toll-free telephone number and an email address
  for the redress administrator. The notice must be posted not later
  than three days after the effective date of the Order and for at
  least one year after the redress period ends. In addition,
  the companies must use a
  form letter (see page 18) attached to the Orders to
  directly notify consumers who purchased their products about the
  FTC’s charges.

So, what does this
mean? Although these settlements
didn’t break new ground on the kinds of claims the regulators
are targeting with regard to CBD products, they signal heightened
attention on an industry that has proliferated exponentially over
the last couple years. It’s also notable that
Commissioner Chopra
called for the FTC to pursue larger companies with regard
to spurious claims and to focus on unlawful opioid treatment
claims, which can be couched as treatment for chronic pain and
related conditions. Health claims have long been of interest
for the FTC. Given this and the upcoming change in the
federal administration, the CBD industry should expect more
settlements like these in 2021.

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