As we reported in October 2017, cannabis dispensaries represent the latest wave of Proposition 65 targets. A new plaintiff is on a campaign against cannabis dispensaries, claiming the businesses did not appropriately warn consumers before knowingly and intentionally exposing them to marijuana smoke. In November and December 2017, more than a half dozen California dispensaries were sued by plaintiff Michael DiPirro in Alameda County Superior Court, alleging violations under Proposition 65. Similarly, we informed you in October 2017 that more than 1,000 dispensaries were implicated under Proposition 65 by an unrelated plaintiff, Michael Murphy, who issued close to 700 Notices of Violation (NOVs) against dispensaries in the Spring of 2017. Because companies that violate Proposition 65 can be liable for civil penalties up to $2,500 per violation, injunctive relief, and reasonable attorneys’ fees incurred by the plaintiff’s counsel in pursuing the matter, we don’t expect this trend to ease in the near future. As discussed in more detail below, cannabis dispensaries and manufacturers and retailers of cannabis edibles and paraphernalia need to be well-informed of their obligations under the applicable regulations including, but not limited to, Proposition 65.
What Do You Need to Know?
Proposition 65 requires that businesses with 10 or more employees provide a clear and reasonable warning to California consumers before knowingly and intentionally exposing them to any agent on a list of more than 900 chemicals known to cause cancer or reproductive toxicity. This list includes agents such as marijuana smoke and pesticides found in cannabis edibles. Armed with knowledge of these agents, plaintiffs are using various strategies under Proposition 65 to seek compensation. The recent claims brought by Michael DiPirro allege the dispensaries expose consumers to marijuana smoke without adequate warning. The DiPirro claims even extend beyond the cannabis plant and claim that paraphernalia, including smoking pipes and rolling papers, also trigger obligations under Proposition 65 because their consumption and use result in marijuana smoke, causing an alleged exposure sufficient for Proposition 65 purposes. On the other hand, the myriad of Proposition 65 NOVs initiated by Michael Murphy in the Spring of 2017 took a different angle and focused on Proposition 65 violations for alleged pesticides in cannabis edibles.
We have learned that the California Attorney General’s office continues to evaluate what type of Proposition 65 warning, if any, should be required for pesticides in cannabis edibles. For the time being, plaintiff Michael Murphy has agreed not to file lawsuits stemming from the over 1,000 cannabis-related NOVs previously issued, unless he provides the AG’s office with at least 30 days’ notice. But Proposition 65 isn’t the only law to monitor for businesses manufacturing or selling consumer products involving cannabis or cannabis consumption. Such businesses should be aware that the California Bureau of Cannabis Control issued emergency regulations in December 2017 that create one regulatory system for both medicinal and adult-use cannabis (16 California Code of Regulations § 5000 et seq.). The regulations institute broad requirements concerning license types and sales practices, as well as more specific provisions governing quality assurance and permissible residual pesticide levels in cannabis edibles. An outstanding question is whether a cannabis edible product that satisfies the new Bureau of Cannabis Control regulations will additionally be required to display a Proposition 65 warning. Until that issue is resolved, manufactures and retailers of cannabis edibles should consider testing their products on an ongoing basis to ensure residual pesticide levels below the standards set by the new Bureau of Cannabis Control regulations.
What’s the Takeaway?
Plaintiffs are using Proposition 65 to target cannabis dispensaries and manufacturers and suppliers of cannabis consumer products under a variety of legal approaches, including pesticides and marijuana smoke associated with edibles, plants, and paraphernalia. As dispensaries, manufacturers, and retailers seek to diversify product lines and consumer options, such as vaporizers and concentrates, a pulse should be maintained on risks that continue to emerge in the market. Unmanaged risks can consume company profits, marginalize a competitive advantage, or impact licenses to operate.
In addition to the expanding scope of product types that are being targeted by Proposition 65 plaintiffs, the pool of businesses in whistleblowers’ cross-hairs could increase. The Adult Use of Marijuana Act (AUMA) established a program for California to regulate commercial activities related to cannabis for recreational use beginning January 1, 2018. Based on the trend we are observing and reporting, new businesses formed under the AUMA could be confronted with Proposition 65 liabilities if unfamiliar with state regulations and other responsibilities. The business of cannabis involves legal issues in areas such as agriculture, bankruptcy, corporate, FDA, government relations, health care, insurance, intellectual property, labor and employment, licensing, real estate, and land use. A comprehensive compliance plan addressing the relevant laws and regulations, including but not limited to Proposition 65 and the new regulations issued by the California Bureau of Cannabis Control implementing AUMA, should help minimize the legal risk involved in operating businesses focused on cannabis consumer products.
Arent Fox's Cannabis group will continue to monitor developments in this area. If you have any questions, please contact Lynn Fiorentino, Paul Gadiock, or the Arent Fox professional who usually handles your matters.