May 3, 2023
Written by Highlyte
“You are hereby directed to cease any, and all, illegal activity immediately. Failure to cease this activity puts your ability to obtain a license in the legal cannabis market at substantial risk. The unlicensed sale of cannabis is illegal and subjects you to substantial fines and possible criminal penalties.” - The New York State Office of Cannabis Management
No cannabis operator wants to receive a cease-and-desist letter from their state regulatory body like the one above. But between 2019 and 2021, Perkins Coie found there were 130 new case filings related to federal cannabis class actions.
So how can your cannabis brand avoid being a cease-and-desist statistic? It often comes down to understanding the specific circumstances behind this challenging legal and regulatory environment, and how to reduce your degree of risk for potential litigations.
A cease-and-desist letter is formal notice that a business should stop harmful or illegal activities, typically sent by an attorney, a court or a government agency. Cease-and-desist letters often result in private settlements, rather than trial judgements, and can be sent regarding legitimate violations of cannabis compliance regulations.
For cannabis compliance violation letters, the recipient typically needs to formally respond to the cease-and-desist and comply with any demanded action, such as adding a license number to a website or revising THC percentages on packaging to be more accurate. But cease-and-desist letters can also be used in a predatory fashion by bad actors. This problem isn’t limited to cannabis—research shows that up to 61% of patent lawsuits are asserted not to protect intellectual property or public health, but to obtain licensing fees. That can be especially true in an emerging industry like cannabis, where innovation is routine and fast-paced, and new intellectual property is constantly being produced.
So what types of compliance violations might result in cease-and-desist filings or further legal exposure? There are a few mistakes cannabis companies tend to make more frequently than others:
The best defense against cease-and-desists and class action lawsuits is deep familiarity with the cannabis marketing regulations in every state where your cannabis company operates. MSOs are particularly vulnerable when they move into new markets, for example, because they now have to contend with yet another regulatory environment as well as broader visibility.
Using a content compliance tool like Highlyte to review not only public-facing copy and visual collateral but also internal strategies, content briefs, brand identity development documents and influencer agreements is a great way to become more familiar with the salient regulations in the states in which your company operates.
Settlement amounts for these types of cases aren’t insignificant. In the case of Pope, et al. v. Cura Partners, for example, Cura was ordered to pay $500,000 as well as the class notice, mediation and incentive award costs and attorney fees. The violation in question? The lawsuit against Cura claimed that the company mislabeled almost 200,000 units of its Select Elite, Select Pax and/or Select Dabbables vape products.
Indeed, Perkins Coie’s findings show that 23% of cannabis class action claims between 2019 and 2021 related to inaccurate labeling of a product’s THC or CBD content or the FDA’s recent shifts concerning the regulation of CBD. In both instances, taking the time to fully metabolize current testing and packaging regulations, as well as where THC and CBD fall in the (admittedly murky) gray area of federal oversight, could have headed legal trouble off at the pass.
That’s very important given that $500,000 settlements like the one levied against Cura are nowhere near as high as they will be as the cannabis industry continues to mature. It would be a mistake to think that future plaintiffs aren’t already collecting evidence for tomorrow’s federal class action lawsuits, like the one that impacted the tobacco vape brand Juul.
It would also be naive to believe that content in violation of compliance regulations would be flagged as soon as a plaintiff has noted a discrepancy. Some plaintiffs—particularly predatory ones—may wait years to flag an issue with the appropriate regulatory bodies, while fines and damages continue to accumulate.
If the financial risks and cease-and-desist letters that come with cannabis non-compliance don’t sound like the vibe your brand is going for, we don’t blame you. Avoiding hassles ranging from social media account shutdowns to legal risks is one of the best ways to preserve the long-term interests of the business you’re working so hard to build. Ultimately, when it comes to cannabis compliance the best thing a brand can do is cease-and-desist its assumptions that marketing regulations are no big deal.
We designed Highlyte to help cannabis companies avoid the types of behavior that result in cease-and-desist letters and litigation. Incorporating routine checks of both internal and external content and ensuring each piece of packaging, web copy, social media posts and advertising collateral adheres to the regulations of the most conservative state in which you operate can save a lot of time, money and stress in the future.
Ready to learn more about how Highlyte can help cannabis companies avoid legal exposure stemming from content compliance violations? Book a demo with us today