The end to the Washington State vape flavor ban this July reminds us that companies are liable for the effects of their products. Most lawsuits against companies stem from alleged harm inflicted by the manufacturing, sale, or design of a product. Although there have been relatively few claims made against companies in the cannabis space, there are many places where they are at risk.
Regardless of whether a company is providing medical and/or recreational cannabis or hemp flower to consumers, insurance is a must. Unlike other products, the manufacturers, growers, ancillary product retailers, and property owners of cannabis companies need special insurance coverage. If your cannabis company doesn’t have special coverage, you’re putting yourself at risk from claims in these major six areas.
6 Areas of Product Liability
Marketing to Children
This is one of the more regulated areas of the cannabis industry. Edible products, in particular, undergo rigorous review prior to being accepted into the market. Some bills have proposed an outright ban on products like hard candies and gummies due to their appeal to children. Hemp gummies, common in the market, aren’t entirely legal presently. Oral consumption of CBD is not FDA approved, leaving CBD edibles open for lawsuits.
Breach of Contract Claims
Breach of Contract claim potential covers a broad area for cannabis companies to face litigation. These claims can be initiated when a consumer believes the product they purchased did not perform as expected. Also, if the product was more dangerous than expected. Claims will likely arise from contract breaches between farms, brokers, or salespeople, and third party brand management companies. Contracts between producers and processors mean cannabis companies risk litigation from other businesses.
Intentional Misrepresentation
Essentially a case of fraud, these claims stem from making false or misleading claims about the product. A lawsuit against the cannabis company LivWell states that the company intentionally lied in its ads about product quality. The vertically integrated garden and dispensary were accused of withholding information regarding their use of a banned pesticide. The use of banned pesticides in cultivation has led to the formation of independent companies like OK, focused on randomly screening products for undisclosed pesticide use. CBD and cannabis companies risk litigation when they source products for repackaging. If the material was grown using illegal pesticides, for example, they are liable when reselling it.
Breach-of-Warranty
This area of risk stems from false claims about the effects of the product. CBD companies are at risk if they make claims about the product’s effectiveness in preventing, curing, or controlling medical disorders. One CBD company just recently made claims that their products would control against Covid-19 infection, for example. Any claims on a product that is unsubstantiated make them liable for litigation. All products should have an implied and express warranties disclaimer.
Design Defect Claims
These claims are pretty self-explanatory. When a consumer feels that the product’s intended purpose is not safe or suitable, a company is liable for a design defect claim. Cartridges are a great example, given that they are often manufactured in facilities that are not making food-grade products. Contaminants in the cartridges, leaky cartridges, and exploding batteries are just a few potential defects in the cannabis space.
Negligence
Failure to provide warnings to consumers of known health risks can result in Negligence lawsuits. Healthcare providers prescribing medical marijuana could be liable if they do not warn consumers about the risks of smoking or vaping, or driving under the influence. Doctors prescribing medical cannabis can place themselves at risk for negligence claims especially if they are prescribing to patients under 25 years of age. Budtenders who are uneducated about the products they are recommending could put their dispensaries at risk.
Be A Mindful Business Owner
Regardless of whether you’ve been operating in the cannabis space for many years, or you’re interested in starting a new business, you need insurance to protect your business and personal interests. Companies like Matrix Insurance & Benefits Solutions can help every business find the right balance of coverage to keep themselves protected.
