New California cannabis health-warning label requirement could trigger swell of industry lawsuits

cannabis labeling; public-health warnings, New California cannabis health-warning label requirement could trigger swell of industry lawsuits

Some California cannabis companies, including La Vida Verde, already are ahead of the curve in terms of complying with California's Jan. 3 deadline to carry the state's new public-health warning labels. (Photo courtesy of La Vida Verde)

Health warning labels will be required for all cannabis products sold in California starting Jan. 3, a mandate that will likely create a wave of new product-liability lawsuits targeting marijuana and hemp companies, industry attorneys predicted.

The warning labels are designed to alert consumers to the possible health impact of marijuana smoke and THC. The labels have legal roots dating back more than three decades.

Proposition 65, a California law passed in 1986, requires the state to:

  • Publish a list of chemicals known to cause cancer or birth defects.
  • Call for the placement of consumer warnings on all product labels that contain any of the chemicals on the list.

Once the state mandate goes into effect in early January, all products that create marijuana smoke or contain delta-9 THC –  essentially every cannabis product on the market – must have a Prop 65 warning label.

The new requirement covers hemp-derived CBD products, too.

Legal experts said such a mandate often is enforced not by state regulators but by private plaintiffs and attorneys. That practice has morphed into a cottage industry in California targeting cannabis manufacturers and some retailers.

“The bounty hunters will be able to start regulating and enforcing those come Jan. 3, 2021,” Anne Marie Ellis, an Orange County attorney who specializes in product liability, said during a webinar in early December.

“We will definitely see the same people, over and over again, represented by the same lawyers.”

The mandate

The labels in question can come in two formats: a standard warning or a short-form version.

The former is wordier and more explicit, while the latter is shorter and intended for smaller products that don’t necessarily have space on their exterior for lengthy disclaimers.

The short-form warning reads, “WARNING: Cancer and Reproductive Harm – www.P65Warnings.ca.gov.”

If a product doesn’t have the warning on its actual packaging, then the alert must be placed somewhere obvious so consumers can see it, Ellis said, such as on the store shelf where the product is displayed for shoppers.

And because both marijuana smoke and THC are about to be triggers for Prop 65 requirements, she said, literally every company that does business in California needs to comply with the law – not just companies that produce smokable products.

“With respect to this industry, we have so many different products that are potentially implicated. We have the noncombustible products, like edibles, topicals and vapor products,” Ellis said.

Prop 65 lawsuits aren’t new to California marijuana businesses.

Though California added marijuana smoke to its list of carcinogens in 2009, THC wasn’t added until 2018.

Then, a January 2020 ruling by the state Office of Environmental Health Hazard Enforcement listed both as potential reproductive toxins and spurred the new Jan. 3 deadline.

The possible liabilities

The primary concern for businesses come Jan. 3, said Ellis and two other cannabis industry attorneys, is “bounty hunters” who will shop for marijuana and hemp products with the aim of finding products that aren’t in compliance.

They can file a notice of violation and push for an out-of-court settlement.

“This is low-hanging fruit for lawyers who want to make a quick buck and don’t want to do a lot of work,” said Lara DeCaro, a San Francisco attorney who represents a number of marijuana businesses such as The Apothecarium.

DeCaro said all her clients – and probably most of the legal marijuana industry – are already complying with the Prop 65 labeling mandate because such requirements have been on most companies’ radars for a long time.

But she’s still expecting a wave of legal complaints, noting there will inevitably be industry stragglers who put off complying until the last minute.

Moreover, there are attorneys who already make a living exploiting Prop 65 violations in other industries, since it’s a statewide law that covers all consumer goods and because the state lists more than 1,000 chemicals that require Prop 65 warnings; marijuana smoke and THC are only two of them.

“They will go around, much like they do under the (Americans with Disabilities Act) and find violations and then file numerous complaints,” DeCaro said. “Whether or not those complaints end up having merit, they’re going to name a bunch of people, and defendants will throw a few thousand dollars at it just to make it go away.

“It’s a cost-benefit analysis at that point. Am I going to spend $20,000 on a lawyer to fight it and get it kicked out, or am I just going to spend $3,000 at it and make the person go away?”

Ellis said that roughly 90% of the Prop 65 cases she’s been involved with have settled out of court, but she warned that the associated costs can be pricey.

In 2018, Ellis said, there were 829 Prop 65 settlements in California that added up to $35 million in payments, with another $27 million in attorney’s fees and costs.

“It is a big business,” Ellis said.

If that’s not enough of an incentive, state law allows for fines to be levied against companies whose products violate Prop 65 mandates. Those fines can run up to $2,500 per product per day, though Ellis said that provision is rarely enforced.

Who’s at risk

Although most of the responsibility for Prop 65 warning labels falls on the manufacturers of those products, the legalities can easily rope in retailers who aren’t on their toes.

So DeCaro and Ellis recommend that all retailers begin using indemnification agreements or clauses in their contracts with distributors to ensure they’re not held legally responsible for a product that might be labeled improperly.

“If they don’t have good indemnification clauses in their supplier agreements … that could be problematic for some retailers,” DeCaro warned.

DeCaro also said she’s much more worried about hemp companies than marijuana businesses at this stage. She’s seen a good number of hemp-derived CBD products that don’t yet have Prop 65 warnings on their labels.

“It’s really the hemp-derived CBD products you’re going to see a lot of whiplash around, because I don’t think they understand they need to list THC as a reproductive toxin under Prop 65,” DeCaro said.

“They’re probably the ones who are going to be caught unaware by this.”

For the most part, though, word has spread around the marijuana industry, and most operators seem to be prepared for the Jan. 3 deadline.

“The industry is aware. There’s been a fairly good job of discussing the need for Prop 65,” said Pamela Epstein, attorney for Oakland-based Eden Enterprises and a board member of the California Cannabis Industry Association.

“Prop 65 is generally on most checklists for incoming and outgoing product at the manufacturing and distribution and retail level, so they should be ready.”

Bryce Berryessa, who runs several marijuana companies in Santa Cruz, including manufacturing brand La Vida Verde, said his sense is that many cannabis businesses have already prepped for the new labeling requirement.

“I think most companies are using the short form Prop 65 requirements so the changes do not pose too much of an issue,” Berryessa wrote in an email to Marijuana Business Daily.

“I do think it would have been nice if the regulatory bodies spread the information a bit better, as I think it may catch some companies off guard,” he added.

“Particularly flower and vape companies, as they are less likely to use the short from Prop 65 requirements.”

John Schroyer can be reached at johns@mjbizdaily.com