As the legal landscape for hemp continues to evolve, manufacturers and sellers of CBD products face increased challenges, such as an unsettled regulatory conditions, limitations on what types of products can be sold (and in what locations), and hurdles to raising capital factors that go beyond those routinely faced by businesses in a nascent industry.
Still, the industry continues to grow rapidly. One study estimated that sales of hemp and CBD products in the United States will increase from a base of $1.9 billion in 2018, before federal legalisation of hemp-derived CBD via the 2018 Farm Bill, to $20 billion in 2024, a compounded annual growth rate of 49% (https://bdsa.com/u-s-cbd-market-anticipated-to-reach-20-billion-in-sales-by-2024/).
Growth in the industry drives investment along with the presence of more sophisticated and better funded operators. In addition, the industry is now highly visible, and is featured regularly in the news with stories having both a positive and negative impact on its image. It’s all of these factors coming together that result in the heightened risk of product liability claims and attendant regulatory attention.
The pharmaceutical, chemical, tobacco, and vape industries, among many others, have long been targets of product liability lawsuits alleging their products cause injury to consumers or 3rd parties who are exposed to them. As responsible corporate citizens, manufacturers should look to keep up to date of any scientific and medical developments to ensure their products do not cause the same adverse health conditions these products are claimed to cause. Appropriate actions must be taken even when legal claims have not been made; manufacturer’s efforts in this regard (or the alleged lack thereof) are often the subject of scrutiny if litigation does eventually take place. Although the CBD industry may differ from the above industries in terms of their specifics, if any claims are brought against it, it is that also likely that it will face significant liability claims.
The Need for Expert Advice
Responsible manufacturers of CBD-containing products should keep abreast of and understand the scientific and medical literature concerning their products and use and should be aware of any claims that these products may cause disease. In most cases, manufacturers will want to consult with independent scientific and medical experts to evaluate the data. Experts in the fields of biochemistry, toxicology, and epidemiology are central to this process. In addition, if and when specific claims are made that CBD is the cause of a particular disease or other adverse health condition, the expertise of clinicians such as cardiologists, pulmonologists, and oncologists may be called for.
The goal of obtaining this advice is to meet every manufacturer’s duty of being an “expert” with regard to the products it makes. This expertise includes evaluating claims made regarding product use. While product liability laws vary in their specifics, most jurisdictions treat manufacturers as having “constructive knowledge” of such claims, meaning they will be considered to have such knowledge if they could have known it, regardless of whether or not they actually knew it. See, e.g., Toke M., Restatement (Third) of Torts and Design Defectiveness in American Products Liability Law, Cornell Journal of Law and Public Policy, Vol. 5(2), p. 265 (1996).
This raises a further aspect of addressing product liability risks: the benefit of engaging counsel well versed in the underlying legal obligations, before litigation occurs. Counsel can assist with evaluating the severity of any potential claims that might arise, as well as with addressing pending legal claims. In addition, counsel can assist a manufacturer in considering issues such as, what statements it might make regarding the benefits of its products, what mitigating actions might be taken to lessen litigation risks, and what warnings, if any, might accompany its products. Statements on company websites and other public-facing materials are also worth examining with the benefit of counsel.
In short, the CBD industry is entering a new era, one bringing new and expanded commercial possibilities, but also concomitantly expanded liability risks. An understanding of the underlying science, and the related legal issues, is a necessary first step towards minimizing these potential risks.