A new worry? The Racketeer Influenced and Corrupt Organizations Act (RICO) now in the cannabis insurance business?

A federal court in Denver back in 2018 rejected RICO claims against a Colorado marijuana grower. The issue in law was that the hashtag postings of the company such as #buymyCBD accompanied by a photo of the product could be considered a depression-claim. The conclusion is that these ads MUST got through some regulatory compliance review before being utilized. The blame here rests with the SEO companies that use what are called meta tags. This is definitively advertising and cannot be misleading. There are often warning signs on NON-COMPLIANT meta-tags, but they may signal to the governments’ regulators that there are non-compliance issues being hidden like health claims. This sounds complicated and is, but medical cannabis sellers must be aware of these pitfalls. Cannabis will be MORE REGULATED in the future and the upfront issue is: will your insurer respond to its duty to defend in RICO situations?

The FDA and FTC have sent warning letters to CBD companies about unfounded health and disease claims. Those companies that talk about help for depression, cancer, arthritis and on are on a tightrope and bound to fall if science is not used in their selling propositions.

As we come through COVID, the FTC issued an administrative complaint in April 2020 to Marc Ching of Whole Leaf Organics, who agreed to stop making recovery claims and paid a fine on three of his products espousing the idea that CBD was an “anti-viral wellness booster.” Who paid the fine and represented the company is not known.

This past December, the FTC started “Operation CBDeceit”, and levied fines against canna companies about false claims for their extracts.

So, what are the risks of making sales based on non-scientific claims?

1. There are substantial costs for legal responses to respond to the government.
2. Seizure and injunctions can happen because once a canna company is issued a letter it is on the governmental “radar”.
3. Class action lawyers who are circling the industry could use a “warning letter” as a basis for an industry-wide indictment.
4. Web searches will bring the names and locations of companies being warned.
5. The best talent in the executive suite will stay away because “where there is smoke there is fire.”
6. Companies being fined by the FTC might be required to inform customers via social media, website or written notices.
7. The companies on these governmental radar screens must report to the FTC for 20 years.
8. Watch what Amy Abernathy, the FDA’s principal deputy commissioner, has to say as she spearheads this governmental tour de force, saying that she is “protecting the public.”

Please immediately notify your liability carriers of any governmental letters and make sure that they will defend your company. Kannariskmanagement has science-based evidence to prove the validity of certain CBD health claims, and we will discuss these next time …see you then.

Michael B