FTC’s Operation CBDeceit Brings Action Against CBD Companies

Updated: Dec 30, 2020

It should come as no surprise to read of today’s FTC crackdown on CBD companies making deceptive claims. Of the 3000+ CBD companies the FTC chose six to make a clear statement that ongoing noncompliance can be costly.

So Why Did They Choose These Six? What Happened?

An FTC official once told me their enforcement actions are a shot across the bow as a warning to the entire industry. This is a clear Marketer Beware Signal as hundreds of CBD companies are still making similar claims.

The FDA or FTC look at the 10,000-foot view of an entire website and socials. One claim may not attract a letter or enforcement action, but a disease claim in a video, a claim hashtag on socials, and a testimonial claim can elevate your risk. The authorities piece them all together for one big picture of non-compliance. They like to make examples out of companies not following rules, especially in areas they want to highlight which is what we saw today. Lately they have been focusing on COVID, Alzheimer’s, opiate reduction claims, social media posts, and claims made on videos to name a few.

In all six complaints there are quite egregious claims and many fall into the vulnerable population category. This is in line with previous enforcement action, another reason to follow FDA/FTC trends.

There are many common mistakes referenced in this enforcement action. I review many of these in a recent blog post Warning Letter Review: What went wrong and how to avoid.

Although obviously not allowed, these claims and buzzwords continue to show up in product marketing materials. I mostly see this in educational blogs that are clearly written with the intention to sell products. For companies worried about their compliance, a good first step for companies to take it to remove all the buzzwords including COVID from all marketing materials. Don’t forget going back in time to look at old social media posts!

In one complaint to Steve’s Distributing, the claims referenced Twitter posts from 2018. As I’ve said before clean up old social media posts, as they provide no current benefits, but the FDA/FTC looks at a two year old tweet in the same context as a current one. There is also an excerpt from a live chat and of course blogs. The moral here is education is good. Education which is deceptive for commercial gain is bad.

Has Anything Like This Happened Before in CBD?

Yes and no. The most recent serious enforcement action was against Thrive who really shook a stick at the FTC with ongoing serious claims such as cancer. Other than the numerous warning letters which have less teeth, I have not seen such a clear sign of the FTC’s action on CBD before, showing us the FTC is sick of companies saying anything to sell a product.

What Is the Difference Between the FDA & FTC?

There are differences between the FDA and the FTC although there is much overlap. Here is my oversimplification:

The FDA governs the manufacturing and labeling of products (such as food and supplements). In the digital era labeling has broad meaning and can mean anything that markets the product. This could be a social media post, hashtag, video, or even an influencer statement.

The FTC oversees advertising practices to ensure consumers are not misled. They are one of the good guys in my opinion and protect consumers from everything like sweepstakes scams targeting seniors, to products marketed with erroneous health benefits for the purpose of material gain.

A claim may be allowable by the FTC if not misleading and has met their scientific substantiation standard. This same claim however could be unallowable under FDA regulations as certain claims (disease claims e.g. hypertension) are never allowed. Remember the FDA Disclaimer Not intended to treat, diagnose, prevent, or cure any disease.

Are These Actions Different Than a Warning Letter?

Yes, the actions announced today have a lot more teeth than an warning letter! The FDA and the FTC can issue warning letters, as we have seen by the hundreds of these issued for COVID related and other claims. Warning letters are not good and should be avoided as they can alert class action attorneys, require resources to respond to, are a matter of public record, and can scare away investors to name a few. We discuss this in more detail here.

What Happens Now?

Here are just some of the actions which happen now. I also expect class action lawsuits to follow.

  • Each company must pay a fine within 8 days of order effective date. These are up to $85,000.

  • Respondents must notify all identified eligible customers by mailing each a notice

  • Respondents must 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 Order, along with a toll-free telephone number and an email address for the redress administrator.

  • Respondents must report on their notification program (to the FTC) under penalty of perjury:

  • For 5 years from the date of the last dissemination of any representation covered by this Order: 1. All materials that were relied upon in making the representation; and 2. All tests, studies, analysis, other research, or other such evidence in Respondents’ possession, custody, or control that contradicts, qualifies, or otherwise calls into question the representation, or the basis relied upon for the representation, including complaints and other communications with consumers or with governmental or consumer protection organizations;

  • And many more administrative, financial, and compliance reporting directives. Here is one of the orders for your bedtime reading.

What Can We Learn?

There are a lot of obvious points here such as making claims for the purpose of selling products is never a good idea. Claims in marketing may bring small revenue gains, but in the end FTC enforcement action can sink a company.

How Can Companies Avoid This from Happening?

  • Clean up old social media posts starting today!

  • Remove claims from all marketing (socials, web, videos, etc.). Here are some examples if you are asking What is a claim?

  • Get educated. Here are lots of free videos and resources which may help.

  • Develop a company culture of compliance. I write about this here.

  • Hire a consultant to help you maximizing sales by minimizing regulatory risks. This requires staying up to date on enforcement trends.

  • Hire a consultant to help you develop compliance best practices and review marketing materials.

For further detailed discussion on this I recommend Josh Long's article. He is an expert resource for all things regulatory.

For a free consultation regarding your compliance needs contact me here.

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