FTC’s ‘Operation CBDeceit’: How to Understand It and What To Watch For Going Forward

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In December 2020, the Federal Trade Commission (FTC) announced proposed settlements with six CBD companies accused of making a broad range of unsubstantiated health claims, including that CBD can treat cancer, heart disease, hypertension, Alzheimer’s disease, bipolar disorder, and chronic pain, among others. Nicknamed “Operation CBDeceit,” the enforcement sweep was part of the FTC’s ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites, through social media, and on other platforms. These settlements became final in early March 2021.

For those who have been monitoring regulatory enforcement relating to CBD claims, the types of claims listed in the FTC’s Complaints are familiar reading. Prior FTC and Food and Drug Administration (FDA) enforcement has focused on products that featured claims of treating chronic diseases and health conditions similar to the claims at issue in the “Operation CBDeceit” settlements. In that respect, these settlements do not differ from prior enforcement.

In other respects, though, these settlements are different from prior FTC enforcement on CBD claims. By including multiple companies and announcing all settlements at once, the CBDeceit announcement was coordinated to send an authoritative message to the CBD industry, broadly that the law requires companies to have robust evidence known as “competent and reliable scientific evidence” to support their health claims, a standard that applies to health claims for all consumer products.

These settlements also name not just the company as a respondent, but also individuals in their official capacity as corporate officers. Given the significant degree of entrepreneurial activity in the CBD and hemp industries, this should be understood as an indication that the FTC will look to hold individuals liable as a way of ensuring compliance with the settlement agreement, particularly where the respondent company is comprised of only a few people. In addition, five of the six settlements included monetary components ranging from $20,000 to $85,000, which will be used to provide consumer refunds, called “redress.”

The respondent companies are also required to notify consumers about the settlements per prescribed terms. For example, the Easybutter LLC settlement requires the company to provide a notice on all of their social media accounts (including any Facebook, Twitter, Instagram, or YouTube accounts) and on the first page of their websites. Such notice must link to a copy of the Consent Order (settlement agreement), along with a toll-free telephone number and an email address for the redress administrator. The notice must be posted not later than three days after the effective date of the Order and for at least one year after the redress period ends. In addition, the companies must use a form letter attached to the Consent Orders to directly notify consumers who purchased their products about the FTC’s charges. This notice requirement is different from the vast majority of FTC settlements involving health claims.

So, what does this mean? Although these settlements didn’t break new ground on the kinds of claims the regulators are targeting with regard to CBD products, they signal heightened attention on an industry that has proliferated exponentially over the last couple of years. Health claims have long been of interest to the FTC. Given this and the transition to the Biden administration, the CBD industry should expect more settlements like these in 2021.

For those who are new to the CBD industry or unfamiliar with advertising rules, this explainer provides additional context for understanding Operation CBDeceit.

Who is the FTC?

The FTC is the federal agency tasked with protecting consumers from unfair and deceptive practices in the marketplace, including via advertising.

What roles does the FTC play in the CBD/hemp market?

The FTC’s role in the CBD/hemp market is to protect consumers from unfair and deceptive acts and practices. In the CBDeceit cases, the FTC alleged that the companies made claims that their CBD products could treat or prevent a range of chronic illnesses and conditions but that the companies did not have adequate evidence to support those claims. Because of this, the FTC considered the claims deceptive. To resolve the enforcement matters, each of the companies agreed to a settlement, the basic terms of which are discussed below.

 Is this the first FTC enforcement on a CBD company?

No, but Operation CBDeceit is the most significant and coordinated FTC enforcement in the CBD space. Prior to this, the FTC had issued joint warning letters with the Food and Drug Administration (FDA) to companies whose products also featured aggressive health claims. There was also a settlement in July 2020 involving a CBD seller, Marc Ching, which related to claims that CBD products could “treat, prevent, or reduce the risks of COVID-19,” claims that the FTC also alleged lacked adequate supporting evidence.

Is the FTC’s enforcement like the FDA enforcement on CBD?

Yes and no. The FTC enforcement is like the FDA’s enforcement on CBD products in that both agencies are concerned about consumers using untested and unproven CBD products to treat or attempt to prevent serious diseases and conditions, and may forego conventional medical treatment. The FTC’s enforcement is different from the FDA’s enforcement on CBD products in that the FTC is not addressing whether the products at issue can be legally sold as dietary supplements, foods, beverages, etc., under the law. The FTC’s enforcement in Operation CBDeceit is focused on whether the product claims are deceptive under the law.

In addition, the FTC’s enforcement differs from FDA’s CBD warning letters in that the parties to the FTC settlements must comply with the settlement terms for twenty years. If they violate the terms, the FTC can charge them with a violation and seek civil financial penalties of up to $43,792 per violation.

There are lots of companies out there making similar claims. Why did the FTC target these companies?

We do not know why the FTC targeted these specific companies. It is frequently the case that there are many companies making similar claims and the FTC, like all law enforcement, will pursue some but not others. Looking at the complaints, it’s worth noting that the companies are similar in that they all made claims that their products could treat or prevent serious health conditions or diseases, including that CBD is safe for all users, treats pain better than prescription medications like OxyContin, and is able to prevent or treat a wide range of serious conditions, including cancer, diabetes, cognitive decline, autism, schizophrenia, substance abuse, and AIDS, amongst others. The FTC alleged that none of these claims had adequate substantiation.

That said, the companies differ in the range of health conditions or diseases they claimed could be treated with CBD. It’s possible that the FTC was looking to demonstrate the broad range of false claims being made in the CBD marketplace.

What were the details of the settlements these six companies agreed to with the FTC?

Each of the consent orders requires the companies to have competent and reliable scientific evidence when making any other health-related product claims, and prohibits them from making several of the claims at issue without human clinical testing to substantiate the claims. As noted above, these settlements name not just the company as a respondent, but also individuals in their official capacity as corporate offers. Five of the six settlements included monetary relief ranging from $20,000 to $85,000. In addition, the companies are required to notify consumers about the settlements. While the terms of that notice vary, most require the companies to provide notice of the settlement on both their websites and social media accounts, as well as use a form letter to notify consumers who purchased their products about the FTC’s allegations.

What’s the main lesson CBD, hemp and cannabis companies should take from these enforcement actions?

The main takeaway is that health claims require robust substantiation to be properly supported. The law requires companies to have competent and reliable scientific evidence when making any health-related claims. In plain terms, this is a quantity and quality of evidence sufficient for experts in the field to agree that it is enough to support the claim, which is a very high bar. For health claims, this is commonly clinical testing on the ingredients or the finished product. Given the investment required to conduct product clinical testing, many companies opt to try to market using only testimonials to convey their product benefits. However, testimonials alone are not considered reliable claim substantiation.

In addition, companies should expect to see more enforcement like this in the coming year. The FTC has long prioritized enforcement on deceptive health claims and is likely to continue to do so.

Kristi Wolff is a partner at Kelley Drye & Warren and chairs the firm’s cannabis law practice group. Her legal practice focuses on advertising of food, drugs, dietary supplements, and consumer health products. Having served as in-house counsel, Ms. Wolff is particularly attuned to balancing business objectives with legal considerations.

Source: One


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