So bad news, everybody. The worst-case scenario is realized. There’s a federal lawsuit that’s been filed against several major cannabis companies, and it’s exactly for the reasons we’ve talked about. Hey, I’m Morgan Davis. I’m a cannabis attorney based in Raleigh, North Carolina. Let’s talk about how to keep your business protected and thriving.
The Importance of Establishing Best Practices
For years, as a cannabis attorney in the hemp and cannabis space, I have been telling clients that you need to come up with your own best practices. There’s no standards in this industry, but if you don’t follow any standards, you’re opening yourself up to liability. We talk about it on this channel all the time—the various ways in which you can be the better product in the category, the better product in the market. But the truth of the matter is that most of the industry hasn’t done that. And why would they? As a business owner, it’s hard to justify by spending money on something just in case when there’s been little to no enforcement. And when you have an attorney who tells you for years, “Listen, at some point, this could get bad. You could get arrested. You could get sued. The federal government could get involved.” But it doesn’t happen. It doesn’t happen. It doesn’t happen. I get it. You stop listening. Well, now it’s happened.
Federal Lawsuit Unveiled: The Allegations
In Georgia, a federal lawsuit has been filed against Cookies, Stizzy, Columbia Lab, Cloud9 Distribution, and several other companies, co-conspirators is what they’re identified as, basically saying that these companies knew they were selling products that were, in fact, illegal marijuana and couching them as hemp, and I shouldn’t say couching them, labeling them, and presenting them as legal hemp. Now you guys know how I feel about the word marijuana, but we’re talking about federal law here. And so, as we all know, under the Controlled Substances Act, cannabis above 3% Delta 9 THC is marijuana. So, we’re going to use the term today. Here’s what it says:
The Plaintiffs’ Claims: What You Need to Know
A plaintiff by the name of Heather Leadbetter purchased a number of delta-8 Vapes from a distributor and retailer in Georgia. Those Vapes included products from Savage Enterprises, Cookies, Stizzy, and several other manufacturers. All of the Vapes claimed to be legal, meaning under 3% Delta 9 THC concentration. All of the Vapes were tested. All of them were well above the limitation, and several of them contained contaminants—mycotoxins and microbes, i.e., really gross stuff that you and I don’t want to be inhaling into our bodies. Beyond that, the plaintiffs go on to claim that, in addition to doing this, they a. knowingly did it, b. did it in concert, meaning they all knew they were doing it and they did it together, and c. that they lab shopped and found Labs that were willing to falsify their certificates of analysis to give them results that they wanted so they could sell what they knew to be illegal products into the legal Market, committing fraud, misleading customers, and potentially harming many customers. They allege thousands. That’s why it is a class-action lawsuit, meaning while they have one named plaintiff, there are thousands potentially who could be affected by these actions.
Understanding the RICO Claim: Implications for Cannabis Businesses
The claims begin with a RICO claim, which basically alleges that the defendants acted in concert to defraud the public and benefited from those illegal actions. This allows them to up their damages by like three and four times—negligent misrepresentation, fraud, and unjust enrichment. Their damage claim is at a minimum $150 million.
Here’s the thing, guys. We all know that it’s happening. We all know that this is true. Everything that’s alleged in this claim is known to be happening in this industry all over the place. And yes, by Cookies and by Stizzy and by many other big actors. So what does that mean? This should be a massive wakeup call for anybody in this industry who wants to keep operating in this industry because here’s what it says: one, they know what you’re doing, they’re aware of it now, and you’re going to be held liable for it; two, if you’re a big enough fish to become attractive for lawsuits, it’s now open season. There are plaintiff law firms all over this country who make their money on going after company for misleading the public. Wendy’s, Dunkin Donuts, you name it. Almost every massive food producer in this country has been a target of some of these types of law firms who basically go and say that what you’re saying in your advertising, what you’re saying on your label is not actually what’s in your food or what’s in your product. And a lot of times, they have been held accountable. There is no reason that will not occur here, especially because we’re talking about is the difference between legal products and federally and state illegal products that are highly regulated or just completely illegal, i.e., marijuana.
Lab Shopping and Falsified Certificates: A Troubling Trend
Lots of companies lab shop. But Labs who are falsifying records, that’s a problem. If you can call up a lab and they can say “what do you want the COA to say,” don’t use that lab. If you knowingly produce a product that you know without a doubt is going to test hot but your whole game plan is “well I won’t possess it anymore, now somebody down the line will possess it,” this lawsuit should tell you that that’s no longer a good game plan.
They’ve included the manufacturers, the Distributors, the lab, the retailer, and the money guys. Everybody is brought into this lawsuit and if it’s successful, then everybody can be held liable in this industry, which is the first time we’ve seen that happen. Last year was the first time we’ve seen Distributors rated and held responsible for products that they’re selling to retailers. We saw some retailers before that, but we’ve talked about it before, guys, enforcement is picking up.
And the latest Federal lawsuit, which includes a RICO claim, big deal, is a massive red flag that the music is about to stop and everybody’s fun, frivolous time is about to end. And you need to start adopting best practices for yourself. You need to start holding your company to a higher standard and the people you work with to a higher standard – your lab, your manufacturer, your distributor, your retailer – because if you don’t, you can be held liable not just by a regulating agency, not just by the federal government, but by any customer who buys your product and finds that what you sold them is not what it is. In fact, that what’s on the label isn’t what’s inside the wrapper.
If you want to know more about best practices and how to adopt those and what to do moving forward, give us a call and we will help you avoid the worst-case scenario.
