OVERVIEW OF POTENTIAL CLAIMS AGAINST CANNABIS BUSINESSES

By Elizabeth Dalberth, Esq., Sweeney & Sheehan P.C.

As more cannabis dispensaries open in New Jersey, defense counsel should be aware of the types of claims that can be brought against cannabis businesses. To be sure, the plaintiff’s bar will be evaluating what types of claims can be brought against growers, labs and dispensaries. This article will address several types of claims that are available under certain factual circumstances.

One area of litigation involves consumer fraud. The case of Centeno and Wilson v Dreamfield Brands, Inc. and Med for America, Inc., No. 22STCZ33980 (Cal. Super. Ct. Oct. 20, 2022), illustrates how consumers are using claims of consumer fraud to sue manufacturers and sellers of cannabis. In that case, the plaintiffs allege that the defendants committed fraud with regard to the manufacture, sale and marketing of pre-roll cannabis products. The complaint alleges that the advertising for the pre-rolls emphasized the potency of the strain, declaring, “This is the one joint that will get you to Mars quicker than Elon Musk.” The pre-rolls listed THC content at 46%; however, the plaintiffs’ testing of the product revealed a much lower THC content of 23% to 27%. If true, this means that the THC content was inflated by 70% to 100%. The suit is based on the premise that most consumers prefer and seek out cannabis with a higher THC content, and, because of this demand, the sellers can set a higher price for products with a higher THC content. Plaintiffs also allege that sellers “lab shop” and use whichever lab provides them with the highest potency rating. The plaintiffs claim that they were injured because they would not have purchased the product if they had known that the THC content listed on the product was inflated, and they also allege that they overpaid for the product due to the defendants’ misleading labeling. This case is also illustrative of the conflict of interest caused by a grower’s ability to choose labs for testing, which conceivably could motivate a lab to issue testing results favorable to that grower.

Another topical area of concern dealing with lab testing is that, as marijuana still remains a Schedule I controlled substance, there are no federal regulations with regard to testing cannabis. Recently, there has been a focus on cannabis being contaminated with pesticides, arsenic, fungus, lead and mold. See, e.g., Stephanie Armour, For Marijuana Users, Even legalization Doesn’t Guarantee Safety, Wall Street Journal, Feb. 20, 2024. These contaminants have been shown to cause fungal infections, numbness, movement disorders, seizures, muscle weakness and rapid heartbeat. People who are immuno-compromised are more susceptible to risk due to their weakened ability to fight off infections. State regulators have closed down labs and dispensaries for faulty testing and for contaminated products. In New Jersey, Curaleaf has been investigated for selling products that were not tested in a lab as required by state regulations. It was also subject to product recalls due to possible fungal contamination, which can cause allergic reactions or infections. Although causation may be the biggest issue of proof for a plaintiff who is alleging injury caused by consumption of tainted cannabis, it should be expected that lawsuits will result from ingestion of contaminated cannabis.

Another area of possible litigation involves mislabeling of products. Curaleaf settled a class action suit in Oregon after it sold CBD drops that actually contained THC. Williamson v. Curaleaf, Inc., 3:22-cv-00782 (D. Ore. May 30, 2022). THC is the psychoactive substance that produces intoxicating effects, and is stronger than CBD, which is not psychoactive and is mostly used for medicinal purposes. In Oregon, products containing THC are not permitted to be sold to consumers without a warning label disclosing the presence and amount of THC. The case alleges that the plaintiffs were harmed by the unintentional consumption of THC, and would not have purchased the product if it had been labeled properly. Another class action lawsuit was filed in California, alleging that the manufacturers overcharged customers by illegally selling products with a substantially lower THC content than what was set forth on the label. Gallard v. Ironworks Collective Inc. and Stiiizy LLC, 22ST-cv-38021 (Cal. Super. Ct. Dec. 6, 2022). Like the Centeno case above, this suit claims violations of consumer protection laws and false advertising, and that the defendants charged more for a product with a higher THC content. It claims that customers were deceived by relying on the inaccurate labels. Another labeling issue relates to a manufacturer’s use of labels that look like popular children’s candy, drinks and snacks. For example, there are cannabis products with packaging that look like Doritos or Jolly Ranchers, which are attractive to children. This has caused the FDA and the FTC to issue warning letters to manufacturers of products that use packaging imitating foods and beverages favored by children. These letters could be used as evidence against the manufacturers in lawsuits alleging harm caused by accidental ingestion. Products liability actions could also be brought on the basis of failure to warn, and design and manufacturing defects. These cases could allege that a manufacturer failed to properly warn consumers about risks, side effects or correct usage of a product. Manufacturing and design defect claims could be based on improper levels of contaminants in the growing process, as well as on products containing dangerous levels of THC. Cases involving products liability, as well as the other claims discussed herein, will inevitably rely on expert testimony to opine as to causation, and expert challenges by the defense as to methodology and valid science is one area where the cannabis industry can protect itself from future claims.

Negligence claims could be brought against dispensaries if budtenders fail to properly and effectively discuss usage of cannabis, especially with first-time users. For example, an incident in Denver, Colorado, involved a first time user who ingested 6 times the suggested amount of an edible cookie, who jumped out of a window and died. The dispensary clerk advised the user and his 5 friends to split an edible cookie six ways, but when the user did not feel immediate effects he ate the entire cookie himself, seemingly unaware of its potency. Thus, cannabis businesses should ensure that labels properly disclose the risks associated with use of the product, and even the proper way to ingest it. Dispensaries should also ensure that budtenders are properly vetted and trained.

There have also been wrongful death claims associated with the ingestion of cannabis as well. One case was brought by the sons of a man who suffered a psychotic break after ingesting an edible and killed his wife. Andrew Kirk v. Nutritional Elements and Gaia’s Garden, 2016-cv-31310 (D. Colo. April 13, 2016). Although the case resolved, the plaintiffs’ counsel had emergency room records and experts on hand to show that the ingestion of the cannabis led to the murder. Another wrongful death case was brought against Curaleaf, Inc. in federal court in Oregon by the estate of a 76 year old man who ingested CBD drops that actually contained THC. Yoakum v. Curaleaf, Inc., No. 3:22-cv-00001 (D. Ore. Jan. 1, 2022). His use of the product allegedly caused a marked decline in his communication and mobility, and caused stroke-like symptoms, requiring hospitalization on two occasions, and it is claimed that it caused a weakened immune system to the point where he was unable to fight off Covid. Again, there are causation issues but Curaleaf admitted that an employee confused two containers during the filling and packaging process, one containing CBD and one containing THC, and Curaleaf was fined and issued a suspension, which could be used as evidence at trial.

In sum, cannabis businesses should ensure that they are using labs that utilize proper testing methods. They should ensure they are not overrepresenting or underrepresenting the amount of THC in the product. Proper labeling of products is extremely important, and businesses should also ensure that they are compliant with state regulations. Adhering to these policies will reduce future risk to the company and will assist in the avoidance of litigation.