The FTC Launches First Major Crackdown on CBD Marketers

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 in 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 allowed the makers of those claims to get off with a simple warning.  Last April, it went a step further, bringing its first enforcement action against a marketer making a CBD health claim.  While the main thrust of the case concerned COVID-19 treatment claims based on the presence of Vitamin C and herbal extracts in the company’s dietary supplement, it also targeted an anti-cancer claim based on CBD also being in the product. Whether or not the FTC would have moved against the CBD claim alone, given that the chief focus of the action, and of its enforcement efforts throughout 2020, was preventing exploitation of the pandemic with baseless COVID-19 claims, only the FTC knows.

Whatever the answer, last month the FTC let the world know, after giving CBD marketers two years to heed its warnings (or not) about unsubstantiated health claims, that the time for velvet treatment was over and the gloves were coming off.  In its first law enforcement crackdown on deceptive claims in the burgeoning CBD industry (dubbed “Operation CBDeceit”), it announced complaints and settlements with six sellers of CBD products that had made a wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, acute pain, and others.  The settlements against the six companies (Bionatrol Health, LLC, Epichouse LLC (First Class Herbalist CBD), CBD Meds, Inc., HempmeCBD, Reef Industries, Inc. and Steves Distributing, LLC) prohibit them from making CBD and other health claims for dietary supplements, foods and drugs without randomized clinical trials (RCT), and ordered five of them to pay consumer redress.  

While the settlement terms were fairly standard for deceptive health advertising cases (RCT substantiation requirements and ability-to-pay redress), the procedural approach the FTC took – administrative enforcement – was unusual and could signal some concern on its part about the continuing viability of its authority to obtain consumer restitution in a direct action in federal court.  Normally, when the FTC sues a false advertiser, and wants money, it will go straight to federal court, under its so-called Section 13(b) authority, seeking injunctive and monetary relief, including disgorgement of “ill-gotten” gains and restitution.  When money is not an objective, it will usually file only an administrative complaint under its general “Section 5” authority.  What makes these administrative cases different is that all but one of them involves a monetary component.  Had they been administratively tried rather than settled, the final order issued by the FTC, assuming it prevailed, could not have contained monetary relief since the FTC lacks the authority to order it on its own.  Rather, to obtain money, it would have had to file a second action in federal court and prove that the CBD claims were not only false, 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 authority to order monetary relief, without any finding of willful deception.

As I have chronicled in several posts over the past year, the FTC’s authority to obtain equitable monetary relief under Section 13(b) is under serious revisionist judicial assault and could be overturned by the Supreme Court in a case now pending before it.  In anticipation of a possible adverse ruling from the Court, the FTC, as I reported last month (“FTC Pleads With Congress To Save Its Monetary Authority”), has asked Congress for a legislative fix to leave no doubt about its ability to obtain monetary relief in federal court in a Section 13(b) action.  Meanwhile, does the unusual fact that most of these CBD administrative settlements contain a monetary feature signal a shift in FTC enforcement strategy away from Section 13(b) in consumer redress cases while the legal status of its monetary authority under that provision remains in doubt, or could the administrative route taken here have been a “one off” signifying nothing?  Again, only the FTC knows, but that doesn’t prevent FTC watchers from wondering.  Perhaps the answer as to whether these cases were an aberration or the start of a trend will become clearer when we see what procedure the FTC follows in its next enforcement actions while waiting for the Supreme Court to render a judgment on its Section 13(b) monetary authority.

In the meantime, one thing the cases signal for sure is that the FTC is firmly on the warpath against marketers overpromising the health benefits of CBD.  The honeymoon is over, and especially as the pandemic begins to recede with widespread COVID-vaccination, freeing up FTC resources from that emergency, CBD marketers that don’t get the message from this crackdown can expect to be squarely in the FTC’s crosshairs.

Talking about FTC, Online Marketing

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