In many instances, cannabidiol (“CBD”) is being marketed to prevent, treat, and even cure various modern diseases. Companies that make such representations, however, should be aware that their health-based claims are no longer going unnoticed by the federal government. For nearly fifty years, the Federal Trade Commission (“FTC”) has protected consumers and enforced the requirement that health-based claims must be scientifically substantiated. The FTC had previously sent letters to CBD businesses warning them about making questionable and unsubstantiated representations about the health benefits of CBD.
On Thursday, December 17, 2020, as part of Operation CBDeceit, the FTC announced proposed settlements with six companies that marketed CBD products as prevention, treatment, or cures for serious diseases and health conditions. In six separate complaints, the FTC made the following allegations:
In addition to monetary payments, the proposed settlements require the companies to obtain reliable scientific evidence and methodologically sound clinical testing before making health-based claims in the future. While these claims are particularly egregious, Operation CBDeceit—highlighted by the FTC decision to settle six cases on the same day—is designed to send a clear message to companies selling CBD that they will be held to some basic level of substantiation standards.
Indeed, the FTC has long had authority to regulate advertising of non-prescription drugs or non-medical products. Yet, one would only need to watch an hour of late-night television to know that the FTC’s regulation of false statements in dietary supplement advertising is sometimes lacking. (In fact, in 2012, the Department of Health and Human Services Office of Inspector General found that, among a random sampling of 127 dietary supplements marketed for weight loss or immune system support, 20% made prohibited claims.) However, these settlements should be viewed as part of a larger movement by the federal government to rein in false CBD claims, which could lead to actions by agencies that have historically been more aggressive than the FTC.
This past summer, the FDA produced a report for Congress outlining the wild inconsistencies between CBD labels and the products themselves. Among other things, about half of the samples tested contained THC and over half did not contain within 80 to 120 percent of the amount of CBD claimed. Thus far, the SEC has been aggressive to protect investors from false non-health CBD representations (i.e., claims about market access or regulatory approval). Companies should expect the SEC to continue to closely monitor the CBD market and be wary of health claims made to investors regarding their products. It is likely that the federal regulatory agencies will be even more aggressive under the incoming Biden administration and it is therefore imperative that companies in this space confer with legal counsel who are experienced in interacting and negotiating with federal regulators.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
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