A consumer protection law aimed at preventing robocalls is now being used to target cannabis companies. And the trend looks like it is only going to continue.
The Telephone Consumer Protection Act (TCPA) was enacted in 1991 to restrict autodialed telemarketing communications made via calls and fax messages made without the recipient’s consent. Subsequent regulations by the FCC further expanded the TCPA’s reach to cover text messages. The TCPA also provides a private right of action for aggrieved individuals to sue and obtain $500 for each violation of the act, trebled to $1,500 for a willful violation. At those rates, unsolicited texts or calls sent to even a modest target marketing list can quickly add up to six- or seven-figure penalties.
Since its enactment, the TCPA has created a cottage industry for professional plaintiffs seeking a hefty payday. Because the act allows private plaintiffs to sue on a class-basis, telemarketers, who can make up to tens of thousands of calls per day, often face potentially ruinous fines in TCPA cases. In one prominent recent case, health marketer ViSalus found itself on the receiving end of a $925 million dollar verdict for making nearly two million unsolicited calls. And now, the TCPA is being used with increasing frequency to target cannabis companies.
Critically, these TCPA suits are arising largely from seemingly innocuous activities. For example, most of the lawsuits have stemmed from a cannabis company collecting a consumer’s number when they walk through the door or sign up on an app. Even though the consumer provided the business with attheir number, it is still a violation of the TCPA to contact them if the collection form lacked the proper consent language.
California marijuana company and delivery service Eaze Solutions, Inc. found itself the target of a 51,000-member class action at the beginning of 2019, with plaintiffs alleging they were inundated by unsolicited text messages. Despite first offering to settle for $1.75 million and then later to $3.49 million, the judge objected to both deals stating the dollar amounts were too low. Multistate operator Curaleaf, perhaps the largest cannabis company to face a TCPA suit, was sued last month amid allegations that it sent unsolicited text messages to the named plaintiff and “thousands of other consumers.” Dozens of other smaller delivery services and dispensaries, such as Xaler, Good Chemistry I, LLC, and Therapeutic Hemp, Inc. are also grappling with TCPA suits for sending text messages without the recipient’s consent.
While TCPA suits were first brought against cannabis companies in 2018, the last year has seen an explosion in litigation. So why the uptick? For starters, opportunity. The burgeoning cannabis industry is becoming increasingly lucrative, making businesses prime targets for TCPA suits. Additionally, many cannabis companies offer products with a short shelf life, which incentivizes direct consumer marketing. The user base for cannabis products also tends to skew toward younger individuals, who often prefer communicating via text message. Finally, cannabis companies have to deal with a myriad of other state and federal laws and regulations restricting advertising when operating, and the TCPA may simply not be on their radar yet.
Since the TCPA has been around for decades, professional plaintiffs have become increasingly crafty in the way they construct their lawsuits. Litigants have become proficient in identifying vulnerable businesses and, in some cases, spoofing or altering personal information to advance their lawsuits. In many cases, professional plaintiffs seek these businesses out.
That’s what it is crucially important to take proactive steps to understand what is and is not allowed under the TCPA and work with competent legal counsel to ensure your consumer marketing complies across all platforms. Otherwise, your business may find itself the latest class action headline as TCPA litigation continues to take aim at the cannabis industry.
With a practical approach, Chad provides compliance guidance and litigation defense on matters related to cannabis, advertising and marketing, teleservices, and other consumer protection issues.