Labeling and Advertising Risks for CBD Companies

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Cannabidiol (CBD) – a non-psychoactive component of cannabis with numerous claimed health benefits – has steadily grown in popularity in recent years. This upward trajectory went into overdrive with the passage of the Agriculture Improvement Act of 2018, more commonly known as the Farm Bill, which legalized hemp-derived CBD at the federal level. In the United States alone, some analysts expect CBD sales to exceed $20 billion by 2024.

This market expansion is accompanied by a similarly dramatic expansion in consumer protection legislation, enforcement, and litigation across all industries. While publicity surrounding CBD's potential health benefits has fueled the industry's growth, careless marketing based on these benefits is a trap for the unwary. In fact, the Food and Drug Administration (FDA) and the Federal Trade Commission (FTC) recently issued warning letters to three companies marketing their CBD products as treatments and cures for a variety of diseases and illnesses. These letters underscore that CBD companies must be extremely cautious to avoid costly regulatory enforcement actions and consumer class actions brought by plaintiffs' attorneys seeking to capitalize on this burgeoning industry and the ambiguous laws governing it.

To assist companies navigating this minefield, this article provides an overview of the main federal laws governing the labeling and advertising of CBD products, and a list of marketing dos and don'ts for CBD companies.

Federal Laws Governing CBD Marketing

The FDA and FTC have overlapping enforcement authority over CBD marketing. The FDA has primary authority over labeling, and the FTC has primary authority over advertising.  Companies marketing CBD products must ensure compliance with both FDA and FTC regulations.

FDA

The FDA regulates different classes of products, the most relevant of which for CBD are (1) foods; (2) drugs; (3) dietary supplements; and (4) cosmetics. The FDA has issued guidance stating that CBD can be used as an ingredient in cosmetics so long as it does not cause the product to be "adulterated or misbranded." However, a product containing CBD cannot be marketed as a drug absent FDA approval (the approval process has been estimated by some to cost, on average, more than $1.3 billion). And because CBD is an active ingredient in one drug the FDA has approved, Epidiolex, it cannot be added to foods or marketed as a dietary supplement under the Food, Drug, and Cosmetic Act (FDCA). 

The upshot for foods and cosmetics is clear – CBD can be included in cosmetics and cannot be included in foods. But complying with FDA regulations when marketing most CBD products – like oils and tinctures – is more difficult. The FDA has indicated it will focus its enforcement actions on "circumstances where product developers make unproven claims to treat serious or life-threatening diseases, and where patients may be misled to forgo otherwise effective, available therapy and opt instead for a product that has no proven value or may cause them serious harm." CBD companies should thus ensure the marketing and labeling of a product does not suggest the product is intended to cure, mitigate, treat, or prevent a disease – the key component of the FDA's definition of a "drug." 

Importantly, the FDA has indicated it is expediting its efforts to create a specific regulatory framework for the marketing and sale of hemp-derived CBD, and plans to issue an update on its progress "around end of summer/early fall." However, the FDA "expediting its efforts" should be taken in context, as the FDA previously stated it could take up to five years to promulgate new CBD regulations. Until it does, the FDA's current positions apply – CBD cannot be added to food, and it cannot be marketed as a drug or dietary supplement.

FTC

Companies marketing CBD products must also comply with the FTC's regulations, which, broadly speaking, (1) prohibit deceptive advertising, and (2) require substantiation of all "objective" claims made in advertising. An advertisement is deceptive if it "contains a misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances to their detriment." The level of substantiation required depends on a number of factors, including the type of claim being made. 

Substantiating health claims – like statements that a product "can prevent, treat, or cure" a disease or descriptions of a substance's effect on bodily function – requires "competent and reliable scientific evidence." Such evidence is defined as tests, studies, and other evidence "based on the expertise of professionals in the relevant area, that have been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results." While companies are not required to conduct or commission such studies themselves, companies relying on studies done by others should ensure those studies were scientifically sound.

So, What Can You Say in CBD Marketing?

Companies evaluating the current regulatory framework for marketing hemp-derived CBD products may be wondering what exactly they can say about CBD's potential health benefits on labels and in advertisements. Nothing at all is the safest answer. Properly wording such claims in advertisements is an inexact science, and ensuring the claims are adequately substantiated can be expensive. 

More risk-tolerant companies that wish to market CBD products based on potential health benefits can minimize risk in the following ways:

  1. DO NOT mention specific diseases or illnesses on labels or in advertisements.
  2. DO NOT include the FDA's drug "buzzwords" – diagnose, cure, mitigate, treat, or prevent – on labels or in advertisements. For example, stating a CBD product "may cure depression" would certainly run afoul of FDA regulations. Stating a CBD product "may lower stress," if properly substantiated, may be permissible.
  3. DO NOT guarantee results. While simply saying CBD "may," rather than "does," have a certain effect does not immunize against false-advertising liability, it can reduce liability risk.
  4. DO NOT provide links to articles containing dubious medical claims related to CBD on your website or in advertisements.
  5. DO have your product tested to ensure it contains the exact amount of CBD listed on the label and in advertisements.
  6. DO ensure all claims made are sufficiently substantiated. Importantly, document the substantiation for each claim you make, and retain those records.
  7. DO stay up to date on new research related to CBD. Omitting material information in an advertisement can make it deceptive. If new research contradicts your claims, modify your claims to account for it.
  8. DO stay up to date on regulatory enforcement actions, regulatory guidance, and lawsuits related to CBD labeling and advertising. The three FDA/FTC warning letters mentioned above are a good place to start.
  9. DO ensure your labeling and advertising complies with the laws of the states in which your products are marketed and sold. Some states have enacted laws that are more restrictive than the federal laws discussed above.
  10. DO obtain insurance coverage. Again, CBD marketing occurs in a legal grey zone – the most scrupulous companies are still at risk of enforcement actions and lawsuits (including class actions).

At bottom, making health-based claims to market CBD products invites regulatory scrutiny, regulatory enforcement actions, and lawsuits. The more aggressive the marketing, the greater the risk. Companies operating in this space should consult outside counsel familiar with state and federal labeling and advertising requirements to mitigate the risk of potentially fatal enforcement actions and lawsuits.