Beyond Licensing: Prop 65 Liability Risks for California Cannabis Companies
California has finally ushered in the era of state-licensed cannabis, and cannabis is now a commercial product much like any other (well, at least in the state’s eyes). Forward-thinking companies will not rest on their laurels after obtaining their state licenses, however. As with any product sold to consumers, selling cannabis carries various liability risks. This post concerns a risk unique to California: Proposition 65 (also known as the “Safe Drinking Water and Toxic Enforcement Act of 1986”).
What Is Prop 65?
California voters passed Proposition 65 in 1986. It requires that companies present consumers with a “clear and reasonable warning” when exposing them to chemicals known to cause cancer or birth defects. For products that cause such exposure, the warnings may be provided on products themselves or alongside products when displayed for sale.
California publishes and updates a list of chemicals that trigger the warning requirement. The list contains around 900 substances, including cannabis smoke and chemicals, such as pesticides and fungicides, used in cannabis production.
Is this Really Another Regulatory Requirement Placed on Cannabis Companies?
To be blunt: Yes. It applies to all companies that have 10 or more employees. And, because all cannabis suppliers are likely to take on indemnification and other obligations via contract, even companies that have fewer than 10 employees should comply with Prop 65.
Moreover, there is significant incentive for enforcement of Prop 65. It provides for penalties of up to $2,500 per day, and individuals can, in many instances, bring their own enforcement lawsuits, in which they can claim 25% of the civil penalties imposed as well as attorney’s fees. This is a recipe for litigation because attorneys can be confident that they will achieve settlements that cover their legal fees. In May 2017, for example, a single plaintiff sent around 700 Prop 65 notices to dispensaries based on the alleged presence of fungicides and insecticides in an edible product. Because of the incentives for this high volume approach, we can expect Prop 65 lawsuits to proliferate as the legal cannabis market becomes more established.
What Products Require Prop 65 Warnings?
Any product that contains substances that California lists as a “carcinogen” or a “reproductive toxicant” triggers the Prop 65 warning requirement:
Raw cannabis. Prop 65 requires a warning for all raw cannabis, which is typically consumed by smoking and therefore exposes users to a listed substance (cannabis smoke). Raw cannabis may also contain listed pesticides and fungicides. Although state-mandated testing would, ideally, prevent such cannabis from going to market, certain chemicals trigger Prop 65 warning requirements at any detectable level, whereas state regulations concerning cannabis may only set a maximum allowable concentration. Therefore, it is possible that products could comply with pesticide regulations but still require Prop 65 warnings.
Cannabis Extracts? Whether a particular cannabis extract product requires a Prop 65 warning depends on what chemicals are actually present. There have been various reports that vaporizer devices produce listed chemicals, including formaldehyde, lead, cadmium, and toluene. Companies selling any product that exposes users to these and other listed chemicals may face liability under Prop 65.
Edibles? Edibles are less likely to contain listed chemicals because they are eaten, not smoked, and they are not consumed using devices that may produce byproducts. Still, as with raw cannabis, edibles could contain residues of chemicals used in cultivation and thus trigger Prop 65 warning requirements.
Thankfully, there are “safe harbor provisions” that spell out how companies can comply with Prop 65. Companies should contact their legal counsel to ensure that they take advantage of these safe harbors and avoid becoming targets of Prop 65 lawsuits.