Hemp production, unlike much of the farming industry, has not declined due to COVID-19. Meanwhile, certain CBD companies have wasted no time in making unsubstantiated claims related to COVID-19. In turn, FDA and FTC enforcement has ramped up.
As the pandemic rages on, the CBD industry continues to grow as it did before the crisis, and regulatory agencies are becoming increasingly active in overseeing the burgeoning industry. Over the course of the past eight weeks of quarantine, hemp production has remained relatively constant, and certain CBD companies have attempted to leverage the current crisis in their marketing materials, to their peril. In response, the Federal Trade Commission (FTC) and Food & Drug Administration (FDA) continue to aggressively monitor the marketplace and have taken swift enforcement action against those making false or unsubstantiated claims.
Hemp Production Remains Relatively Unscathed, Supported by Demand and Federal Programs
With the legalization of Hemp by the 2018 Farm Bill, hemp production has remained steady relative to the rest of the farming world. Hemp production buoyance may be attributed to strong demand, which has enabled some hemp businesses to do better in this crisis than they did before the pandemic. Hemp growers, like other farmers, are further supported by federal programs. The USDA recently announced the $19 billion Coronavirus Food Assistance Program (CFAP), which provides $16 billion aimed at aiding farmers. Its funding is sourced from the CARES Act as well as the Credit Commodity Corporation. Separately, hemp farmers are also able to obtain assistance enabled by the $2 trillion CARES Act from the Small Business Administration.
CBD Enforcement Activity
With a new crisis, comes new opportunity – but where opportunity is exploited, enforcement actions follow. Within the past two months, both the FTC and FDA have taken steps to demonstrate to the public their increasing aggressiveness to clamp down on illegally marketed and unsubstantiated products.
Statements from FDA
Confusion over COVID-19 and the best means to containing the outbreak still seem very much up in the air. However, enforcement, as it relates to CBD products and their claimed medicinal effects on COVID-19, is becoming increasingly apparent to industry watchers. First, in early March 2020, FDA Commissioner Stephen Hahn issued a statement updating the public on the agency’s work. In his statement, Commissioner Hahn noted that the FDA was working on: 1) continuing to educate the public on the risks of CBD; 2) seeking reliable data on the safety and benefits of CBD, including opening the public docket on the matter; and 3) monitoring the marketplace for the sale and marketing of unapproved drugs. To that end, the FDA followed up with another piece of public guidance in late April, informing the public that there are currently no approved treatments for COVID-19. The April guidance does not explicitly call out CBD as ineffective or otherwise, but it does demonstrate that the FDA is actively monitoring the market for fraudulent products.
Joint Warning Letters
Just like other entities seeking to capitalize on COVID-19 fears, NeuroXPF, a CBD company based in Nevada, has marketed its products to treat or prevent COVID-19 on its social media accounts and website. NeuroXPF claimed, among other things, that its product could both prevent, by boosting the user’s immune system, and help fight off a COVID-19 infection. In response, on March 31, 2020 the FDA and FTC issued a joint warning letter asserting that NeuroXPF’s products are: 1) unapproved drugs sold in violation of the Food, Drug, and Cosmetic Act (FD&C Act); 2) that the products are misbranded; and 3) that the claims are in violation of the Federal Trade Commission Act (FTC Act) because they are unsubstantiated (i.e., not backed by competent and reliable scientific evidence). Notably, the letter sets a 48-hour deadline for the company to respond with the actions it has taken to address the FTC and FDA’s concerns. The response deadline is striking because the response time has been significantly reduced — previous warning letters typically allotted 15 days for responses.
Similarly, on May 7, 2020, the FTC and FDA also issued a warning letter containing similar allegations to AgroTerra. Specifically, AgroTerra claimed that its CBD products can help relieve stress, and therefore can help boost the user’s immune system to fight off COVID-19. The FTC and FDA also noted that AgroTerra is an Amazon Associate Program participant and as such, it can earn commissions by promoting the sale of certain products “with claims on your website representing or implying that the products can mitigate, prevent, treat, diagnose, or cure COVID-19 in people.” Much like in their earlier letter to NeuroXPF, the FTC and FDA are requiring prompt attention – Agroterra has only 48 hours to respond.
Federal Court Litigation
Lastly, the FTC has filed a complaint against Marc Ching, also doing business as Whole Leaf Organics, in April of 2020 for making false claims. Notably, this marks the FTC’s first lawsuit involving COVID-19 related claims. It also further showcases the severity of inaction to lesser forms of enforcement. Whole Leaf Organics was previously cited by the FTC in late 2019 for making unsubstantiated claims that its products could treat cancer. The defendant never took action in response to the FTC’s warnings and later began marketing his product as a possible treatment for COVID-19. Consequently, the FTC has filed a complaint alleging that Mr. Ching has made false and unsubstantiated claims that his product treats or otherwise prevents COVID-19 and cancer.
The foregoing shows the perils faced by companies who are unaware of or willingly ignore regulatory guidance. Seyfarth Shaw’s Cannabis and Products Liability Groups will continue to monitor and report on market developments. Seyfarth is uniquely positioned to assist companies navigate the complex regulatory regimes established by the FTC and FDA.