Pot Product Liability Suits Coming

The Product Safety & Liability Reporter™ provides updates on significant developments and issues in product safety and liability litigation and regulation, plus analysis from top litigators. Get...

By Julie A. Steinberg

Nov. 2— Marijuana, though legal in some form in about half the country, still seems somewhat counterculture, making it hard to imagine its involvement in something as establishment as a product liability suit.

But Nov. 8 could be the start of a tipping point if, as expected, California voters approve legalization of cannabis for recreational use, attorneys say.

Full legalization in California, which recently overtook France to become the world’s sixth largest economy, would set the stage for huge potential growth of the marijuana industry and, following that, the potential for significant product liability litigation.

Currently, the industry is “still relatively small potatoes, so you’re not getting the attention of the plaintiffs’ bar,” Bryna Dahlin, a former product liability defense attorney who now advises businesses in the cannabis industry, told Bloomberg BNA.

Though significant new litigation appears to still be a ways off, “I think that’s coming,” said Dahlin of Rollman & Dahlin in Chicago.

“If California legalizes, it’s going to double the size of the industry overnight,” she said.

Defense attorney Carl Rowley of Thompson Coburn LLP in St. Louis, Mo., agreed.

“As the industry grows and legalization spreads, I think we can expect eventually to see product liability lawsuits of every type,” said Rowley, chairman of the firm’s consumer products and mass torts practices, and part of its cannabis business practice.

Product liability litigation is likely to include suits for physical injury arising from intoxication and suits for physical injury arising from long-term medical effects including addiction. It also will include consumer suits alleging deceptive and improper marketing, such as campaigns targeting minors, Rowley told Bloomberg BNA.

Companies selling marijuana products for medical use could be subject to the same sorts of claims asserted against makers of conventional prescription drugs, such as failing to warn about side-effects.

Much of the law in this area, like in all areas of product liability, will be determined in the states—California and elsewhere, attorneys say.

One of the most important early litigation-related, and science-related, questions will be one that users have been trying to figure out for themselves, largely ad hoc, for a long time now: How much, and how strong, is just the right amount of pot for those spiked brownies, cookies and wide variety of other edible products.

Booming Market Expected

The sale and use of marijuana, though illegal under federal law, is shielded from federal prosecution in states that have allowed it, and more states are doing so.

Marijuana

The U.S. legal marijuana market for 2016 is projected to be $7.1 billion, according to the Arcview Group, a cannabis investment and research firm in Oakland, Calif.

By 2020, legal market sales nationwide are expected to surpass $22 billion, assuming voters approve the 2016 ballot measures calling for at least partial legalization in the larger states, Troy Dayton, Arcview co-founder and chief executive, told Bloomberg BNA.

Besides California, voters in Arizona, Arkansas, Florida, Maine, Massachusetts, Montana, Nevada and North Dakota are also set to consider legalizing marijuana, either for medical or recreational use.

Recreational use is already legal in Colorado, Alaska, Oregon, Washington and Washington, D.C.

In California, which legalized medical marijuana in 1996, legal sales for 2016 are expected to be $2.8 billion. If Californians vote to fully legalize marijuana by adopting Proposition 64 on Nov. 8, sales are expected to jump to $6.5 billion by 2020, Dayton said.

Proposition 64, in addition to allowing the recreational use of marijuana for adults, would set up a licensing and regulatory structure for nonmedical marijuana use.


Marijuana's Quasi-Legality

Marijuana is illegal under federal law as it's considered Schedule 1 under the Controlled Substances Act.

That status means the federal government considers marijuana to have a high potential for abuse and no accepted medical use.

However, sale and use of marijuana is shielded from federal prosecution in states where it’s legal.

The Cole Memorandum, guidance from Deputy Attorney General James M. Cole, covers medical and recreational marijuana businesses and consumers.

The memorandum says the Justice Department won’t prosecute in states that maintain robust regulatory and enforcement programs.

For example, in states that guard against sales to minors and preventing marijuana sales revenue from reaching criminal enterprises.

But the Cole memo is discretionary, meaning the federal government can change its mind.

Medical marijuana cultivation, dispensing and use is also shielded from federal prosecution by the Rohrabacher-Farr Medical marijuana amendment to a 2014 spending bill.


Big California Market Regardless

Even if voters reject Proposition 64, the California marijuana market is poised to grow under a 2015 law that will allow companies to obtain licenses to produce medical marijuana for profit in that state, starting in 2018.

Up until the 2015 state law was enacted, courts interpreted California’s medical marijuana system as only allowing cannabis production by collectives that operated on a non-profit basis, said Danny Zlatnik, an attorney with the Rogoway Law Group in Santa Rosa, Calif.

Demand for medical marijuana has surpassed what can be produced under the collective model, said Zlatnik.

Recognizing this, the new licensing scheme will allow the creation of for-profit businesses. That, in turn, could foster the development of the “deep pockets” that could give plaintiffs' attorneys an incentive to pursue lawsuits, Zlatnik said.

Focus on Edibles

Edibles—including how much and how strong the marijuana is that's in them—are likely to be the main focus for product liability suits, according to plaintiffs' attorney Ronald L.M. Goldman, a senior partner at Baum Hedlund Aristei Goldman in Los Angeles.

Edible marijuana products include a range of items from chocolate bars, baked goods and candies, to graham crackers and potato chips.

Prime product liability claims in this area are expected to include dosage issues, including issues involving the violation of state regulations.

Tetrahydrocannabinol (THC) is the main psychoactive ingredient in marijuana.

Dahlin, the business attorney with Rollman & Dahlin, said state regulations for edible products generally establish 10 mg of THC in one “serving,” and mandate that each serving be individually wrapped.

States “don’t want somebody to buy a candy bar with 100 mg of THC in it, which will knock your socks off, and have someone consume the whole thing,” Dahlin said.

So companies need to be sure their dosage is correct, using high-quality labs to check their products, she said. “If it’s more [than the allowed amount] you’re going to have a problem with people having a greater reaction than anticipated,” she said.

Goldman, who is both a plaintiffs’ product liability attorney and a consumer advocate focusing on public health and safety, agreed that THC levels are going to be a heavily litigated area.

“The industry now is not only growing marijuana in the traditional sense but they are breeding it so they are upping the power of the THC,” Goldman told Bloomberg BNA.

“So there are going to be questions raised about whether activities like that constitute a defect,” he said.

Much will depend on how a product is marketed and what representations are made: “We will be looking carefully at efforts by industry to market to children, as the tobacco industry has done,” Goldman said.

Unique Issues, No Real Research

One significant problem related to determining the appropriate dosage and potency levels for marijuana arises because cannabis has been illegal under federal law during most of the time when public health science and methods were developing, Rowley, the defense lawyer with Thompson Coburn, said.

Therefore, “there are comparatively few epidemiologic studies examining its association with health risks and health benefits,” he said.

Marijuana is considered Schedule 1 under the Controlled Substances Act, which means the federal government considers marijuana to have a high potential for abuse and no accepted medical use.

That status has thwarted research into the effects of THC and created a huge public health problem, Goldman, the plaintiffs' attorney, said.

For example, the 10 mg standard for edibles isn’t even well-understood, Goldman and others said.

“We really don’t know, is that too high, is it too low, is it just right,” Goldman said. For example, “They don’t know, and this is of concern, is 10 mg safe for an 18-year-old but unsafe for a 65-year-old?”

Younger and older people metabolize substances differently.

Also unknown is what level of THC in a person's system makes it unsafe to drive a car, he said.

“We’re in a state of flux and I think one of the things we’ll be encouraging as plaintiffs’ lawyers is that they ramp up the science, allow us to find out more about it with good science, early on, before industry has a chance to create a tobacco snowstorm,” Goldman said.

California will be ripe for legislative action, “hopefully to push the science and allow us at least internally in the state to be more aggressive in investigating,” he said.

The paucity of science also means no baseline standards really exist for how a product should be made or what consumers expect, Zlatnik said.

State courts are going to be where standards for labeling, design and manufacture are set, according to Hilary Bricken, a lawyer with Harris Moure in Portland, Ore., who advises marijuana businesses.

Conventional Business Practices Creep In

Another traditional business practice slowly finding its way into the marijuana product world, and that could provide additional groundwork for lawsuits to be filed, is product liability insurance.

States where marijuana is legal require companies to obtain commercial general liability (CGL) insurance, Bricken said.

CGL policies don’t all include product liability coverage, but it’s increasingly being offered by insurers to cover claims in this and other areas, Bricken said.

It’s ironic for an industry that “had been operating in the shadows for decades” to start conforming to conventional business norms, Zlatnik, with the Rogoway Law Group, said.

“It requires a different temperament to operate in legal space,” he said. For example, “it requires knowledge of risks, and product liability is one of the major ones.”

Litigation Timeline Uncertain

A timeline for when product liability litigation is expected to take off is hard to predict.

When suits are filed may depend in part on when the plaintiffs’ bar perceives targets with deep enough pockets exist to make litigation worth the effort, said Rowley, who has defended tobacco and consumer product companies from other types of product liability suits.

This may depend on “market concentration in the industry, with a larger number of lawsuits arising from a market that is more highly concentrated and that has fewer stakeholders,” Rowley said.

That's not going to happen overnight.

Dayton, with the investment group Arcview, said that, in the near term, the industry is likely to stay dominated by smaller, regional companies.

Eventually, Dayton said, larger national and multinational players can be expected to move into the cannabis business.

Some activity by household-name companies has already started in some related areas. For example, Scott's Miracle-Gro Co. is acquiring fertilizer companies that specialize in marijuana plants, he said.

Dayton said he would expect more specialty retailers to be interested in marijuana dispensaries that sell products, and food and alcohol industry interest in branded marijuana products.

And, “you might see a wide variety of agricultural players” on the cultivation side, Dayton said.

But most large companies, Dayton said, won't be seriously interested in the market until marijuana is legal at the federal level. That's not likely to happen until at least five years down the road, he said.

Goldman, the plaintiffs' attorney, also said the timing of product liability litigation is a function of when people start reporting injuries.

“It’s possible people may not be aware that they have rights when things go wrong, and that will change over time, as well,” Goldman said.

Product Liability Suits

In fact, so far only two marijuana product-related suits are known to have been filed.

One, Flores v. Liv Well, Inc., Colo. Dist. Ct., No. 2015CV33528 , alleged a cannabis grower used a toxic pesticide called Eagle 20 on its crop. When the pesticide is heated with a standard lighter, it ultimately breaks down into hydrogen cyanide, a well-known poison.

Plaintiffs said in their suit, filed in 2015, that LivWell intentionally sprayed Eagle 20 on its cannabis plants and sold them to medical and recreational marijuana customers without adequate warning.

The suit in Colorado state court was a putative consumer suit, alleging the plaintiffs suffered economic loss.

But it was dismissed after the court found that the plaintiffs consumed the product and didn't show injury.

Colorado later banned the pesticide.

The other suit, Kirk v. Nutritional Elements, Inc., Colo. Dist. Ct., No. 2016CV31310 , was filed by the guardians of three children in Colorado state court May 9 against dispensary Nutritional Elements Inc. and manufacturer Gaia’s Garden LLC.

The suit alleges the children’s father shot and killed their mother in 2014 after consuming “Karma Kandy Orange Ginger,” an edible marijuana product containing more than 100 mg of THC.

The defendants didn’t adequately warn about side effects such as delirium or paranoia, and failed to warn that edibles are metabolized more slowly than leaf marijuana when smoked, the complaint says.

The father's reaction to the edible product likely caused a state of anxiety and, or, panic, the suit says.

The suit is still pending.

David Olivas, one of the attorneys for the children, told Bloomberg BNA he couldn’t comment on the litigation.

Olivas is with Silverman & Olivas in Denver.

To contact the reporter on this story: Julie A. Steinberg in Washington at jsteinberg@bna.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bna.com

For More Information

Full text of the Kirk complaint is available at http://src.bna.com/jM6.

Full text of the Livwell complaint is available at http://src.bna.com/jM8.

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.