(This story appears in the August issue of MJBizMagazine.)
New marijuana retailers looking to connect with consumers might inadvertently violate federal law by using robocalls or text messages if they don’t first ask for recipients’ permission.
The 1991 Telephone Consumer Protection Act—or TCPA, as the law is commonly known—prohibits private companies from using unsolicited text messages or calls to advertise to consumers.
Companies that break the law can be fined up to $1,500 per violation.
That amount can easily skyrocket if a company is sending text messages to hundreds of consumers.
Backbreaker for business
The amount of money to be made has created a cottage industry of lawyers who are willing to file lawsuits on the chance they’ll be able to profit by forcing a quick settlement agreement.
Overlooking the TCPA has been extremely costly for many cannabis companies, often to the tune of tens of thousands of dollars, if not more, said two attorneys consulted by MJBizMagazine.
“To defend a case like this (can cost) tens of thousands of dollars into the six figures, depending on how far the case gets,” said Marc Roth, a former Federal Trade Commission attorney and partner at Cobalt Law in Berkeley, California.
“It’s astounding how companies that are in the cannabis space continue to just not be aware of the TCPA and how dangerous it is.”
Roth and Pennsylvania-based attorney Michael Sampson, a partner at Leech Tishman, both have been watching closely as TCPA cases involving marijuana businesses have proliferated since 2018, when California-based delivery business Eaze became one of the first large marijuana companies hit with such a suit.
Although Eaze was ultimately able to force the plaintiffs in its case into arbitration (the company had the foresight to include such a provision in its terms of service), many other cannabis businesses haven’t been as fortunate. That ignorance about the TCPA has cost an untold number of companies a sizable chunk of change.
MJBizMagazine asked Roth and Sampson for their best advice on how to avoid a TCPA suit and what companies should do if they are faced with one.
‘Consent, consent, consent’
The key to adhering to the TCPA is ensuring consumers have opted to receive text messages or robocalls, Roth and Sampson said. If that critical step is skipped, and a company utilizes these forms of communication, the business will be vulnerable to a lawsuit.
One common way this happens is when companies purchase lists of potential consumers’ names and telephone numbers, which are commodities in the marketing world.
“Consent, content, consent. That is the ultimate defense. Otherwise, you have no other defenses,” Roth said.
Consent can be achieved through direct contact with consumers, either when they visit a retailer’s store, website or some other direct interaction.
This means that buying lists of consumers’ phone numbers is a major misstep, Roth said.
“That’s the biggest no-no, because they don’t have consent” from consumers to be added to contact lists, Roth said. If you’re “texting someone who you don’t know, you’re dead in the water. And there’s a cottage industry of plaintiffs out there who will just sue based on any kind of unauthorized text. So the real watchword is: Don’t buy lists.”
Sampson even advocated setting up a “double opt-in” system that requests consent from consumers more than once, providing extra insurance against a TCPA lawsuit.
“When they’ve opted in, the first text message basically (requires them) to opt-in again, which is considered by many to be kind of state-of-the-art now in the industry,” Sampson said.
He also suggested having written policies for employees to outline precise text messaging and robocalling procedures, careful examination of third-party practices if a contractor is being used and checking company insurance policies to see if they contain TCPA-related coverage in case of a lawsuit.
Above all, cannabis businesses should educate themselves on TCPA parameters so they know how far they can reach in electronic marketing, Sampson said.
Digital marketing firms are worth using, he said, although it’s still wise to keep a close eye on any contractor’s practices. Sampson said he’s seen cases in which a marketing contractor violated the TCPA while working for a marijuana business, which landed both companies on the hook for TCPA fines.
Another way for businesses to protect themselves is to follow Eaze’s lead and include clear provisions in their terms of service stating that any dispute between the customer and the company must be taken to arbitration as opposed to a full court battle.
“That is also what I call a ‘silver bullet’ or get-out-of-jail-free card,” Roth said. “That assumes, though, that that person has interacted with you directly—either on your website or in some other
form—in which case, they have to opt in. And then they also agree to your terms of use. That right there means you have a relationship somehow with the customer.”
Settle quickly
One of the reasons it’s unknown just how many TCPA cases have been hashed out is because many, if not most, happen out of the public eye and with no record of a settlement, Roth said.
That’s in part because it’s usually much cheaper to pay a smaller sum to a potential plaintiff to make the threat of a TCPA lawsuit disappear instead of shelling out tens of thousands of dollars to pay for lawyer’s fees or an expensive trial, he said.
“Very often, these are handled individually,” Roth said, explaining that companies often will receive a letter from a possible plaintiff who received an unsolicited text message from a marijuana business.
That business may then call him for advice, and his immediate suggestion is to settle the case quickly and quietly, along with obtaining a clear nondisclosure agreement that doesn’t admit any liability by the marijuana business.
“If they call me, I tell them: ‘Just write a check. Get rid of this, and then stop doing this,’” Roth said. “There’ve been a lot of lawsuits filed. But more often than not, there’s a threat of litigation. Someone’s demanded, say, $2,500, and that ends it privately.”
Though the idea of paying off a nuisance lawsuit instead of proving a company’s innocence might leave a sour taste in the mouth of some executives, Roth and Sampson agreed it’s a cheaper option than going to trial, especially if the company is legitimately in
the wrong.
If you do get sued
The most immediate step for any marijuana business that receives notification of a TCPA violation should be to hire an expert attorney, both Roth and Sampson said.
“Your time to respond to a legal complaint starts to run when it’s served. And you might only have 20 or 30 days in which to respond. Get legal counsel involved immediately,” Sampson said. “Work with your counsel to craft a mitigation strategy. That can be anything from motion to dismiss, to an answer, to getting started with discovery.”
If a company does get sued for running afoul of the TCPA, one of the first legal strategies should be to defeat the possible class certification, since a class action suit would allow plaintiffs to join forces against a company over the unwanted texts or calls.
If a company can successfully defeat class certification in a TCPA case, Sampson said. “You’ve taken a case that’s worth millions and reduced it to a case that’s worth dollars. Once that happens, it becomes a lot less interesting for the plaintiffs’ (lawyers).”
And in any settlement, Roth said, it’s key to have a nondisclosure agreement included, in part so that the same plaintiff can’t go around telling others that your business is an easy mark.
Still, paying off one plaintiff at a time is risky if a company has made a habit of violating the TCPA, Roth noted. One settlement would likely leave executives holding their breath to see if more plaintiffs come out of the woodwork.
The easiest way to avoid TCPA lawsuits, Roth reiterated, is “don’t send unsolicited text messages.”
