Since hemp-derived CBD containing less than 0.3% THC was decriminalized by Congress at the end of 2018, the Federal Trade Commission has policed CBD health claims with a soft touch. On three different occasions (April, September, October, 2019), seeing unsubstantiated claims that CBD treats virtually every disease under the sun (i.e., cancer, heart disease, Alzheimer’s, MS, PTSD, schizophrenia, ALS, stroke, Parkinson’s, diabetes, AIDS), it has allowed the makers of those claims to get off with a simple warning. A claim by a company that received one of those warnings, however, that its product treats Covid-19, apparently was a bridge too far.
Accordingly, late last month, the FTC finally brought its first law enforcement action against a CBD marketer, Whole Leaf Organics, a California-based company, and its supplement, Thrive. The complaint alleges that the company falsely claimed that the product, which consists mainly of Vitamin C and herbal extracts, prevents, treats or reduces the risk of COVID-19. It also contests a cancer treatment claim for a CBD product sold by the firm. Whether or not the FTC would have sued Whole Food Organics for ignoring its warning to cease the CBD cancer claim if it hadn’t also started making an entirely bogus Covid-19 health claim, only the FTC knows. But the company was certainly inviting more serious attention by doing that, especially since the FTC also has been publicizing warning letters it has sent to companies making baseless Covid-19 health claims since the pandemic began.
While it should not be surprising that the FTC would finally crack down on untrue health claims made by CBD marketers, especially by one who was also touting an unproven treatment that preys upon the pandemic health anxieties of consumers, the procedural approach the FTC took was highly unusual and could signal some concern on its part about the continuing viability of its authority to obtain consumer restitution in federal court. Normally, when the FTC sues a false advertiser, it will bring a single action in federal court, under its so-called Section 13(b) authority, seeking a preliminary and permanent injunction and monetary relief, including disgorgement of “ill-gotten” gains and restitution. This time, for the first time in a long time, it brought a bifurcated action, seeking, and obtaining, by stipulation, only a preliminary injunction in federal court (under a different statutory authority (Section 13(a)), with the rest of the case to be adjudicated in an administrative proceeding. While this route doesn’t foreclose the FTC from ultimately forcing Whole Food Organics to cough up assets and make restitution, it is a more circuitous and difficult one than the direct, one track path of Section 13(b). First, it has to prevail in the administrative trial, and then, if it wants money, it has to go back to federal court and prove that the Covid-19 and cancer claims were not only false and unsubstantiated, but, under another provision of the FTC statute (Section 19), “dishonest or fraudulent.” This requirement, to essentially have to prove intent to defraud, is absent from a Section 13(b) case, where the judge has broad equitable authority to order monetary relief, without any finding of willful wrongdoing.
While the FTC was deciding on this legal strategy, a petition for certiorari in the Credit Bureau Center case, which challenges the FTC’s ability to obtain equitable monetary relief under Section 13(b), remains before the Supreme Court, as does a final decision expected to be handed down soon in a Securities and Exchange Commission case presenting the same issue under its statute, which has similarities to the FTC’s. Could these pending judicial developments, which bear so heavily on the FTC’s enforcement capabilities, have been on its mind when it embarked anew on a long-disused and less efficient procedural path against Whole FoodOrganics, or were other, more prosaic factors at play? Again, only the FTC knows, but that doesn’t prevent FTC watchers from wondering. Perhaps the answer as to whether this case was a “one off” or the start of a trend will become clearer when we see what procedure the FTC follows in its next enforcement cases.