Our cannabis attorneys are normally asked by media, consumers, and other specialists functioning in the hemp and CBD marketplace what we consider will be the subsequent “big issue” in this establishing sector. Typically these concerns concern regulatory and compliance concerns, as (most) firms are keen to mitigate threat and steer clear of operating afoul of state and federal regulators. Regulation is just element of the threat equation, nevertheless, as the worth chain for hemp and CBD is rife with troubles that may well give rise to substantial and even “bet the company” litigation. This post provides an overview of litigation trends we are seeing, or in some circumstances predicting, that hemp/CBD producers, processors, companies, and retailers ought to hold on their radar.
Disputes involving hemp farmers regarding cross-pollination
Cross-pollination is an rising supply of conflict involving hemp farmers and we anticipate an enhance in “farmer v. farmer” litigation as hemp acreage increases across the nation. The passage of the 2018 Farm Bill has noticed hemp production enhance from roughly 25,000 acres in 2017 to 80,000 acres in 2018 to hundreds of thousands of acres in 2019. Oregon alone has surged to additional than 60,000 acres of hemp in 2019. Colorado and Kentucky project additional than 50,000 acres of hemp each and every this year and other states have reported important increases in applications by growers to plant hemp.
Some farmers are increasing hemp for biomass, other people for seed, and nevertheless other people for its CBD content material. This final type of hemp is (for now) the most desirable as customer demand for CBD appears to enhance day-to-day. Farmers increasing hemp for CBD wish particular strains of female hemp plants to realize a higher CBD yield The threat of cross-pollination and contamination by male plants can be a death knell to these farmers’ crops. Even fields grown with certified feminized seed will nevertheless have rogue male plants and several hemp farmers stroll their fields consistently to eliminate the male plants. Farmers increasing hemp for biomass (e.g. fiber and seed) are much less concerned about no matter if their plants are male or female. One more complicating aspect is that some farmers are not sufficiently conscious of the dangers of cross-pollination and are not taking proper actions to safeguard their personal crops. But a further aspect, in some jurisdictions, is the threat of cross-pollination involving marijuana and hemp.
State regulators are just starting to function via the complicated troubles of how to license and approve farmers to develop hemp and how to isolate and safeguard farmers increasing hemp for diverse purposes. Meanwhile, some farmers have taken matters into their personal hands by filing suit against their neighbors for nuisance and other torts alleging that cross-pollination harmed or destroyed their crop.
We anticipate to see additional of these cross-pollination lawsuits in the subsequent various months and urge regulators and farmers to start out functioning toward sensible options to mitigate the dangers of cross-pollination.
Disputes involving hemp farmers and purchasers
Disputes involving hemp farmers and purchasers of raw hemp – no matter if for processing CBD or other industrial purchases is a increasing concern. Setting aside the circumstances involving some type of fraud or failure to provide the crop (see right here, right here, and right here), we anticipate to see an enhance in litigation involving farmers and purchasers. Prospective sources of litigation incorporate no matter if the hemp is legal, chain of custody, total THC, CBD content material, and compliance with proper state and federal regulations.
A possible saving grace is that several of these troubles can (and ought to) be dealt with via a robust production contract or obtain order. As well normally, nevertheless, we see contracts that fail to address particular troubles relevant to hemp. As we’ve mentioned various occasions just before, hemp is a special commodity that demands contractual terms beyond these located in generic agreements. Despite the fact that a robust contract may well not protect against litigation, it may well extremely properly imply the distinction involving attaining lawsuit dismissal at the outset of a case or spending hundreds of thousands of dollars in litigation.
Customer and shareholder actions relating to CBD
We anticipate that firms promoting CBD items will see a important enhance in claims against them by customers and shareholders. Final week a customer class action complaint was filed against JustCBD in the Southern District of Florida. JustCBD sells a assortment of items containing CBD – from gummies to soap to tinctures to cartridges. According to its web page, the business was “founded on the basis that CBD is Mother Nature’s secret miracle.” The complaint alleges that JustCBD overstated the quantity of CBD contained in its items on repeated occasions and in violation of representations and warranties it created in advertising and marketing and promoting its items. The plaintiff alleges it performed independent testing (by Anresco Laboratories) that revealed:
the “JustCBD Honey Liquid Tincture,” which purports to include “100mg CBD” in the bottle, in fact consists of just 48.92mg CBD per bottle. This represents an underfill of around 51%. As a further instance, the “JustCBD Apple Rings Gummies,” which purportedly consists of “250mg CBD,” in reality consists of a non-detectable quantity of CBD. two This represents an underfill of 100%. By misrepresenting the accurate quantity of CBD in their CBD Solutions, Defendants are capable to charge a substantial cost premium on account of these fictitious CBD quantity claims.
The complaint alleges claims for breach of warranty, unjust enrichment, fraud, violation of New York’s Common Small business Laws §§ 349 and 350, and violations of Florida’s Florida Deceptive and Unfair Trade Practices Act. A complete evaluation of the JustCBD complaint is beyond the scope of this report. (Really feel cost-free to e-mail me for a copy of the complaint).
Suffice to say firms promoting CBD items ought to be on notice that the plaintiffs’ bar is actively looking out strategies to money in on the booming CBD market—the complaint notes that marketplace is projected to surpass $23 billion in annual U.S. sales by 2023. Of particular concern is that some states permit plaintiffs to recover attorneys’ charges for violations of their laws prohibiting unfair and deceptive trade practices.
Consequently, we anticipate a important uptick in customer class actions. (Especially offered some of the claims getting created about CBD). Providers in the CBD marketplace ought to function very carefully with their regulatory attorneys regarding any marketing claims and other statements created about their items. For additional reading see right here, right here, right here, here and right here.
Lanham Act claims involving competitors in the CBD marketplace
The Lanham Act, also identified as the Trademark Act of 1946, is the principal federal statute that governs trademarks, service marks, and unfair competitors. Despite the fact that the Lanham Act is usually believed of as the trademark statute, the Lanham Act also protects corporations against unfair competitors by competitors who use false or misleading marketing or labeling. (Notably, customers do not have standing below the Lanham Act).
Despite the fact that we are not but conscious of a Lanham Act lawsuit involving CBD firms, we anticipate that to adjust. A plaintiff may well seek injunctive relief (i.e. an order compelling the competitor to eliminate the false or misleading marketing) as properly as damages and, in some situations, attorneys’ charges. Provided some of the claims created by CBD firms (see right here), cease-and-desist letters and lawsuits nearly create themselves.
I’ll be addressing the Lanham Act in higher detail in the coming weeks as properly as an critical Lanham Act concern that is on the United States Supreme Court’s docket this term.
Hemp is now an international concern and our international trade lawyers are finding a steady stream of concerns on the importation and exportation of hemp and CBD – some that involve the United States and some that do not. See right here for a discussion of the impacts of U.S.-China trade war on hemp.
An critical element of any international dispute is the query of arbitration. This term the United States Supreme Court will resolve a important concern in international arbitration agreements: no matter if the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Foreign Arbitral Award Convention”) permits a non-signatory to an arbitration agreement to compel arbitration against a signatory to arbitration primarily based on the doctrine of equitable estoppel. See right here for a fulsome discussion of this concern.
Provided the international uncertainty surrounding trade and the shifting regulatory environments regarding Hemp and CBD, we completely anticipate an enhance in cross-border disputes and international arbitrations. So if your Hemp/CBD business is functioning internationally, we strongly advocate you start out reading our China Law Weblog – which touches on trade and other troubles that go properly beyond China.