Product liability cases are one of the most damaging legal disputes a business can face. The incidents – often with a defective product that leads to injury or even death – can be time consuming and costly. They can also tarnish a brand’s reputation.
Still, many cannabis companies aren’t taking this threat as seriously as they should, experts said. Marijuana companies “didn’t anticipate the product liability problem you might see in more mature industries,” said Jesse Alderman, co-chair of cannabis practice at Foley Hoag, an international law firm based in Boston.
The Product Liability Act is a subset of infringement law that regulates who should be responsible for faulty or dangerous products. There is no federal law on product liability. Instead, product liability claims are typically based on state law and are “placed under theories of negligence, strict liability, or breach of warranty,” according to FindLaw.com, a provider of online legal information.
Legal professionals generally identify three types of product defects for which companies can be held liable: design, manufacture, and marketing.
Liability for a product with defects or hazards can potentially be tied to any company in the supply chain – from designers and developers to manufacturers, distributors, retailers and others.
For the marijuana industry, the supply chain can include:
- Side companies that create or support inputs for cultivators, such as nutrient or irrigation companies.
- Companies that manufacture and manufacture infused products and concentrates.
- Companies that make and sell ingredients for manufacturers of infused products and concentrates, such as: B. Companies involved in emulsions or fast-moving technology.
- Companies that develop, manufacture and sell delivery devices such as vape pens or inhalers.
- Packaging company.
- Testing laboratories.
Of course, the easiest way to avoid product liability lawsuits is to design and manufacture goods that meet or exceed your state’s cannabis compliance standards.
This means that you make sure that you have designed and manufactured your products according to government or international standards. This means that partners supplying inputs or delivery devices such as vaporizers are screened to ensure that their products meet generally accepted standards.
Cultivator: Growers should ensure that nutrient mixtures, soils, pest control products and other supplies are safe for their crops and products. Cultivators should also ensure that their cannabis is free of contamination – not only when it leaves their facilities, but also when it arrives on store shelves and is used by consumers.
Manufacturer: Food manufacturers should regularly check suppliers of biomass, chocolate, emulsion formulas, and other ingredients to ensure their safety. Manufacturers should also test their products to make sure they are free of impurities, their potencies are accurate, and the product is formulated so that THC and other cannabinoids are evenly distributed throughout the product.
Retailer: Store owners should vet product suppliers and ensure that goods like vapes and groceries have test certificates. The review should also review a supplier’s history and review their reputation with other retailers.
While a number of cannabis companies continue to cut corners in monitoring their supply chains, the industry as a whole has improved in that regard, Alderman said. “As the industry matures and consolidates, as people become more demanding, there will likely be a higher level of care in a company that really examines its supply chain, its suppliers’ practices, how its raw materials are sourced, and the like.” he said.
Claims and Disclaimers
The more common mistakes cannabis companies make product liability claims have to do with false or misleading statements or inaccurate labeling. This includes health claims on websites, in advertisements or on labels. (See “Staying to the Right of Regulators”.
An easy and relatively inexpensive way to reduce your risk is to create disclaimers that can be placed on websites, labels, and in advertisements. The disclaimers can be as general as “This product contains THC.” Common disclaimers on pharmacy and cannabis product websites include: “There may be health risks associated with using this product” and “Not Safe for Children”.
“It could go a long way for people to acknowledge and reject some of the security risks inherent in them,” Alderman said. “Disclaimers are a simple step that gives you plenty of protection. It is a common practice that can be helpful in certain circumstances. “
Insurance as a backstop
Regardless of the precautions companies take against product liability claims, there can be no guarantee that they will not be a defendant in any case. Because of this, it’s imperative that marijuana companies get product liability insurance, experts say.
While insurers offer more access to marijuana companies than banks and other financial institutions, cannabis policies have pitfalls. Rachel Gillette, partner and chairwoman of the cannabis law firm at Greenspoon Marder in Denver, says many insurers that offer cannabis insurance policies undermine below-average service or often fail to pay claims, thereby undermining the marijuana industry’s confidence in the insurance industry.
“Marijuana companies feel under-served,” said Gillette. “However, the quality of insurance service providers has increased exponentially.”
Don’t skimp on insurance coverage when you take out product liability insurance. Get the best possible coverage you can afford, lawyers advised. If a company’s product liability insurance covers $ 1 million but the company is on the losing side of a $ 2 million settlement, the company remains liable for the $ 1 million shortfall.
And if an insurance company refuses to pay a claim, should a cannabis company challenge that rejection? Many cannabis companies fear that due to the nationwide illegal status of marijuana, insurers will feel more comfortable dodging claims.
Whether a marijuana company should challenge an insurer depends on the case, Gillette said. How large is the outstanding entitlement in relation to the costs that would be required to get back the unpaid amount? Are the demands so low that time and resources are not worth it? Or is it big enough that it is worth tracking down? And what are the chances of success?
Unfortunately, there is no case history on such issues for cannabis companies.
“Insurance is still relatively new to cannabis companies. There still isn’t a lot of litigation going on over what marijuana companies can drive forward, ”said Gillette.
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