United States: Cannabis Prop 65 Liability: Lessons Learned From The Dietary Supplement Industry

The cannabis industry appears to be next on the liability "hit list" under California's notorious Proposition 65 statute. In June 2017, more than 700 Prop 65 notices were served on California cannabis businesses. Companies in this emerging market should start mitigating risk under Prop 65 now. Fortunately, lessons can be learned from the dietary supplement industry's expensive Prop 65 battles over the past decade.

California's Prop 65, also known as the Safe Drinking Water and Toxic Enforcement Act, requires a warning on all products that contain chemicals known to cause cancer or reproductive harm, even in amounts a fraction of what is deemed safe by federal standards. Prop 65 has caused havoc within the dietary supplement and herbal product markets over the past decade, led by a cottage industry of "bounty hunter" attorneys who have weaponized the statute, ostensibly in the public interest but in reality as a lucrative for-profit business. These bounty hunters are now turning their attention to cannabis. Though amendments to the statute were adopted in 2016 for the purpose of reducing this abuse, Prop 65 litigation will continue and cannabis companies must stay vigilant.

Many businesses faced with the necessity of using a Prop 65 warning have no concern with the impact that a warning may have on sales or with consumer confidence in the product. After all, who would look twice at a Prop 65 warning on motor oil or insect repellent? Like the dietary supplement industry before them, however, many cannabis businesses will resist including a warning that the product contains a chemical known to cause cancer or reproductive harm. Many cannabis products rely on the consumers' belief that the product is harmless and even therapeutic. For many, this will be an important business decision that may give rise to expensive mistakes − a decision should be made with an understanding of the basis for Prop 65 liability and exposure.

What Is Prop 65 and What Does It Require?
Prop 65 was passed by California voters in 1986 after an aggressive lobbying campaign by environmental and public health activists. The stated purpose of Prop 65 was to improve public health. The general consensus, however, is that Prop 65 has placed an undue burden on California businesses while achieving no significant impact on public health over the past 30 years.

As noted above, Prop 65 requires a warning on all products that contain chemicals known to cause cancer or reproductive harm. There are more than 900 such chemicals listed, and marijuana smoke has been included on the list since 2009.

For a warning to be acceptable under Prop 65, it must (1) clearly make known that the chemical involved is known to cause cancer and/or birth defects and/or other reproductive harm and (2) be given in such a way that it will effectively reach the person before he or she is exposed. The warnings must be "clear and reasonable," meaning that the warning may not be diluted by other language. Various means of communicating the warning are allowed, including product-specific warnings on a posted sign or shelf, warnings on the product label or electronic warnings for internet purchases.

Important Exemptions
There are several important exemptions to Prop 65 that make a warning unnecessary. Businesses with nine or fewer employees are exempt from the statute. There also is an exemption involving chemicals that occur naturally in food. Lead, for example, will be considered naturally occurring only if it "is a natural constituent of a food" and is not added as a result of human activity such as pollution or poor manufacturing processes. The burden is on the company to prove the exemption, however, which is typically time-consuming and expensive.

Another important exemption is provided by "safe harbor" exposure levels for many chemicals on the Prop 65 list, below which no warning is required. The listed chemicals include additives or ingredients in pesticides, food, drugs and common household products. Most food contains at least some level of one or more of these substances. Prop 65 safe-harbor levels, however, are in many cases around 1,000 times lower than levels set by the Food and Drug Administration (FDA), Environmental Protection Agency (EPA) and World Health Organization (WHO). The exposure levels established by Prop 65 are often lower than what occurs naturally in fruits, vegetables, grains and even drinking water.

For example, the Prop 65 limit for lead is 0.5 mcg / day, which is below the amount of lead naturally found in many fruits, vegetables and herbs grown in non-contaminated soil. By comparison, the FDA allows 75 mcg / day and the European Union allows 250 mcg / day for lead. The European Food Safety Authority estimates the average adult consumes around 50 micrograms per day, which is 100 times the Prop 65 limit. It is nearly impossible to manufacture herbal products, including cannabis, without trace amounts of lead. Therefore, despite the "naturally occurring" exemption, discussed above, it can be dangerous to simply assume that an herbal product, including cannabis, complies with safe-harbor levels.

Only about 300 of the more than 900 Prop 65 chemicals have specific safe-harbor levels. For those chemicals without a safe-harbor limit, the burden will be on the cannabis business to establish that the subject chemical is within a safe range. This typically requires expensive testing, the results of which may be open to multiple interpretations as to whether a warning is required.

Determining the Exposure Level
Determination of the "exposure level" also is an important consideration. Prop 65 focuses on the level of a chemical to which the consumer is actually exposed. Although a product may have a very low amount of a chemical on the Prop 65 schedule that is below the safe-harbor level, liability under the statute may nevertheless be triggered based on the recommended serving size. It is advisable for companies to work with a laboratory that specializes in Prop 65 testing to determine the cumulative exposure level in order to verify the recommended serving size.

Enforcement of Prop 65
Prop 65 is enforced through litigation brought by the government or by private attorneys that "act in the public interest." It is the threat of these private lawsuits that causes such consternation among those targeted with Prop 65 liability. After a 60-day notice period, the attorney may file a civil suit against the offending company. Typically, the plaintiff will demand that the defendant provide warnings compliant with Prop 65, pay a penalty, and either recall products already sold or attempt to provide health hazard warnings to those who purchased the products.

Though purportedly brought in the public interest, it is the collection of penalties and attorneys' fees that in reality drives this litigation. Prop 65 allows individuals who bring suit to recover 25 percent of the penalties awarded, which by statute is calculated at $2,500 per violation per day. Amendments made to Prop 65 in 2016 allow for certain voluntary actions by the defendant – reformulation of the product, for example – in lieu of penalties. The threat of paying the plaintiff's attorney's fees makes litigating Prop 65 cases potentially very expensive. The attorney is incentivized to drag out the litigation, and the longer the case goes on, the more difficult it becomes to resolve because of the mounting fees.

This framework has created a cottage industry of Prop 65 "bounty hunter" lawyers who affiliate with "public interest" organizations that bring these cases for profit. According to the California Attorney General, 760 settlements were reported in 2016 with total settlement payments of more than $30 million. Attorneys' fees accounted for 72 percent of that amount. The 2016 amendments to the statute have attempted to address these abuses to some extent by requiring a showing that the public benefits derived from the settlement are "significant" and by requiring contemporaneous record keeping for fees and costs sought to be recovered. Prop 65 litigation nevertheless continues to burden many industries in California, now including the cannabis industry. For Prop 65 liability, prevention is certainly less costly than a cure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.