CBD, THC, and the Hazy Boundaries of Product Labeling in the Cannabis Industry

Cannabis is a dynamic plant with tens of thousands of known applications, from clothing and paper to food and medicine. While cannabis has been cultivated for many purposes over thousands of years, much of the recent attention has been on the chemical compounds that are predominant within certain species of the genus, most notably Δ-9-tetrahydrocannabinol (THC) and cannabidiol (CBD). Of course, THC is known for producing the high that users experience when they smoke cannabis. CBD, on the other hand, does not produce a high effect but has been touted for many health benefits, including but not limited to pain relief, reducing anxiety and depression, easing cancer-related symptoms, treating acne, and fighting insomnia. While marijuana containing THC remains a federally-prohibited drug, CBD is now generally legal across all 50 states and is readily available in grocery stores, gas stations, pharmacies, and other legal businesses all over the country.

While THC and CBD are distinct compounds, the fact that they come from the same plant can create confusion and legal issues for both businesses and consumers. Natural conditions such as temperature, humidity, and soil acidity can affect the amount of cannabinoids in the plant, including the concentrations of THC and CBD. What has resulted is a legal and regulatory patchwork in which even minor chemical variations can have serious legal consequences.

For example, take the case of Douglas J. Horn, et al. v. Medical Marijuana, Inc., et al., 15 CV-701-FPG, currently pending in the United States District Court for the Western District of New York. In that case, a trucker was terminated by his employer because he failed a drug test after using a legal CBD oil that he claims was falsely advertised as being THC-free. The plaintiff subsequently brought suit against the CBD oil’s manufacturers and sellers under the Racketeer Influenced and Corrupt Organizations Act (RICO). In a recent decision in that case, Judge Frank P. Geraci reversed an April order in which the court held that the plaintiff’s RICO claim could proceed against the defendants on the ground that the CBD oil, at the time sold in 2012, constituted a controlled substance. That ruling was based on the fact that a RICO claim can be predicated on the distribution and sale of a controlled substance such as marijuana. In reversing that April order, the court cited a series of Ninth Circuit decisions for the proposition that the mere existence of naturally occurring THC does not render a product a controlled substance so long as it is derived from one of the federally-excepted parts of the cannabis plant, such as the mature stalks or other parts of the plant that are incapable of germination.

However, the court nonetheless determined that the plaintiff’s RICO claim could proceed against the defendants on a theory of mail and wire fraud, as RICO also makes it illegal for businesses to conduct or participate in a pattern of racketeering activity. Judge Geraci explained that there is evidence of the defendants claiming their CBD oil did not contain THC on their website, in YouTube videos, and through customer service representatives, despite the fact that testing revealed detectable amounts of THC. The court explained that the defendants’ act of promoting the product as THC-free in at least three different media was sufficient to conclude that those claims were not mere promotional puffery; rather, they were a fundamental selling point of the product. As a result of this ruling, the plaintiff may now proceed to trial on his RICO claim against the companies responsible for manufacturing and selling the CBD oil.

By the same token, customers have also recently filed class action lawsuits against CBD companies in Massachusetts and Florida on the ground that those companies misrepresented the CBD content of their products. And as previously reported on this blog, alleged unlawful marketing claims by CBD companies have begun drawing serious attention from federal watchdogs. The lesson is clear: cannabis companies should be especially careful not only about the chemical components of their products but also the manner in which they advertise and portray those products in a world where CBD has obtained legal status while THC remains illegal at the federal level and in many states. Legal counsel can be especially helpful in navigating this increasingly complex terrain.

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