Cannabis Litigation: Where Are We Headed and What Have We Seen to Date
By Adam R. Dolan Goldberg Segalla
Nov 4, 2019
The cannabis industry is booming, including CBD companies, vaping companies, THC products, oils, hemp producers, manufacturers and so on. By all estimates, overall sales within the legalized United States cannabis industry are expected to reach $13.6 billion by the end 2019. That’s a 32 percent increase over 2018 totals that reached $10.3 billion. Total sales are expected to reach approximately $30 billion by 2025. So what does that mean? In addition to helping the industry continue transitioning into “normal” commerce, the amount of money being generated also means…litigation.
We’re no stranger to litigation in the United States. In the past we’ve written about the potential for products liability litigation from vaping related deaths and hospitalizations. As of October 22, 34 deaths have now been tied to the use of e-cigarette or vaping related products. There are additional claims being brought within these industries, such as false advertising and deceptive practice claims in Florida, New York, Illinois and Massachusetts. Some of these are class actions. Some are individuals bringing suit. Regardless of how they’re brought, these claims are not going to go away.
Most recently, Trevor Darrow brought suit in Illinois against Just Brands USA, Inc., Just Brands, FL, LLC and SSGI Financial Services, Inc., alleging violations of the Illinois Consumer Fraud and Deceptive Trade Practices Act, 815 ILCS 505/1. A similar lawsuit against Just Brands was filed in Florida. The claims are not unique. In fact, a New York case has already addressed this issue, albeit under New York law.
Douglas Horn v. Medical Marijuana, Inc[i], is currently pending in the Western District of New York. Horn filed suit raising various allegations against the defendants, including a violation of New York’s false advertising and deceptive business practices statutes. Horn lost his job after utilizing CBD oil that was allegedly THC free. However, the oil contained trace amounts of THC in it.
Ultimately, all of these lawsuits will turn on interpretations of state laws specific to the charges. For example, in Horn’s case, the court held that the plaintiffs did not have statutory standing to bring a cause of action under New York’s false advertising and deceptive business practices statute because the statute is intended to police transactions that occurred in New York. The plaintiffs purchased their product online, while outside the state from an out-of-state company. The plaintiffs’ fraudulent inducement claims were partially dismissed. The only actionable statement was defendants’ misrepresentation that their product was free of any THC.
Both sides moved for summary judgment on the civil RICO claim brought by the plaintiffs. Both sides were denied. The court noted that the plaintiffs provided sufficient evidence to prove a pattern of racketeering activity under the applicable case and statutory law. However, there was a general issue of material fact as to whether defendants’ conduct proximately caused the plaintiff’s injuries. Finally, the court held New York’s economic loss rule prevented the plaintiffs from pursuing negligence and strict products liability claims to recover for economic losses associated with loss of employment.
This has obviously been a very topical overview of one court’s ruling on fact specific causes of action. However, Horn’s case and others like it indicate that cannabis-related litigation is not going away. From the original RICO cases of Hickenlooper, to the cases brought in New York, Florida, Illinois and Massachusetts for deceptive business practices, cannabis litigation is just getting started. When we consider that products liability cases will almost certainly arise due to the vaping-related injuries previously discussed, we can anticipate a wave of litigation coming. All companies involved in this space must pay attention to court rulings, application of state laws to specific allegations and assertions they make on behalf of their product. The devil is in the details. Make sure you’re paying attention.
The cannabis industry is booming, including CBD companies, vaping companies, THC products, oils, hemp producers, manufacturers and so on. By all estimates, overall sales within the legalized United States cannabis industry are expected to reach $13.6 billion by the end 2019. That’s a 32 percent increase over 2018 totals that reached $10.3 billion. Total sales are expected to reach approximately $30 billion by 2025. So what does that mean? In addition to helping the industry continue transitioning into “normal” commerce, the amount of money being generated also means…litigation.
We’re no stranger to litigation in the United States. In the past we’ve written about the potential for products liability litigation from vaping related deaths and hospitalizations. As of October 22, 34 deaths have now been tied to the use of e-cigarette or vaping related products. There are additional claims being brought within these industries, such as false advertising and deceptive practice claims in Florida, New York, Illinois and Massachusetts. Some of these are class actions. Some are individuals bringing suit. Regardless of how they’re brought, these claims are not going to go away.
Most recently, Trevor Darrow brought suit in Illinois against Just Brands USA, Inc., Just Brands, FL, LLC and SSGI Financial Services, Inc., alleging violations of the Illinois Consumer Fraud and Deceptive Trade Practices Act, 815 ILCS 505/1. A similar lawsuit against Just Brands was filed in Florida. The claims are not unique. In fact, a New York case has already addressed this issue, albeit under New York law.
Douglas Horn v. Medical Marijuana, Inc[i], is currently pending in the Western District of New York. Horn filed suit raising various allegations against the defendants, including a violation of New York’s false advertising and deceptive business practices statutes. Horn lost his job after utilizing CBD oil that was allegedly THC free. However, the oil contained trace amounts of THC in it.
Ultimately, all of these lawsuits will turn on interpretations of state laws specific to the charges. For example, in Horn’s case, the court held that the plaintiffs did not have statutory standing to bring a cause of action under New York’s false advertising and deceptive business practices statute because the statute is intended to police transactions that occurred in New York. The plaintiffs purchased their product online, while outside the state from an out-of-state company. The plaintiffs’ fraudulent inducement claims were partially dismissed. The only actionable statement was defendants’ misrepresentation that their product was free of any THC.
Both sides moved for summary judgment on the civil RICO claim brought by the plaintiffs. Both sides were denied. The court noted that the plaintiffs provided sufficient evidence to prove a pattern of racketeering activity under the applicable case and statutory law. However, there was a general issue of material fact as to whether defendants’ conduct proximately caused the plaintiff’s injuries. Finally, the court held New York’s economic loss rule prevented the plaintiffs from pursuing negligence and strict products liability claims to recover for economic losses associated with loss of employment.
This has obviously been a very topical overview of one court’s ruling on fact specific causes of action. However, Horn’s case and others like it indicate that cannabis-related litigation is not going away. From the original RICO cases of Hickenlooper, to the cases brought in New York, Florida, Illinois and Massachusetts for deceptive business practices, cannabis litigation is just getting started. When we consider that products liability cases will almost certainly arise due to the vaping-related injuries previously discussed, we can anticipate a wave of litigation coming. All companies involved in this space must pay attention to court rulings, application of state laws to specific allegations and assertions they make on behalf of their product. The devil is in the details. Make sure you’re paying attention.
[i] 383 F.Supp.3d 114 (W.D.N.Y., 2019)