While uncertainty remains about federal enforcement related to the hemp and cannabis industry, there is now some greater clarity as to how individual states are going to respond, and in particular, what state attorneys general plan to do. To date, federal enforcement has been mostly inactive against retailers and their branding activities. However, recent actions by state AGs have predicted specific enforcement activities based on representations of health benefits associated with hemp and cannabis products. This potential enforcement risk may have a chilling effect on retailers and related parent affiliates, as well as current and potential investors.
On July 16, the National Association of Attorneys General (NAAG) submitted a letter to the Food and Drug Administration (FDA) regarding investigations concerning the risks associated with hemp and cannabis use and consumer harm due to mislabeling, advertising or harm to consumers' health. Signed by 37 state and territory AGs, the letter seeks to ensure that AGs remain regulators in this "emerging market." It also requests that AGs be meaningful partners with the FDA in areas such as regulating food and dietary supplements, accurately assessing the risks and benefits of the products.
Essentially, these AGs are forecasting that they will use their consumer protection authority to go after CBD companies under the legal theory that the representations about health benefits from the use of certain CBD products are false, misleading and/or deceptive. Although no particular state or territory AG has issued a civil investigative demand (CID) to date, it is highly likely that CIDs—which are much broader in scope than traditional subpoenas—will be issued in the very near future. The NAAG would not have sent such a letter without the commitment to move forward with enforcement.
If a CBD company's business model is to make certain representations as to the efficacy of its CBD products, a sound course will be to proactively obtain testing from experienced and recognized labs whether in the US or elsewhere in order to rebut any allegation by a state or territory AG that CBD products are unsafe or unable to perform in beneficial ways or that any representation by a CBD company is false, misleading or deceptive. The most efficient way for a CBD company to show lack of intent is to obtain testing from a clinical lab and to ensure that its compliance program is up to date to address these issues.
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