THC, CBD, CBN…the Cannabis industry is quite familiar with acronyms. But it’s another nasty little four letters, TCPA, that are – or should be – on the top of mind for every dispensary, delivery service, CRM platform, and private equity holding company. This as the US Supreme Court decides what the byzantine 30-year-old law will look like following a landmark decision expected by the end of June or July.
The Telephone Consumer Protection Act (TCPA), which regulates robocalls and unsolicited texts to consumers, has been the vehicle for a number of class action suits against Cannabis companies over the past year, including an uptick of such suits during Covid-19. And with the advertising restrictions and younger demographics of the industry, the class actions are now bring brought in droves, with over 10 being brought over the last 6 weeks alone. Like a tremor before a larger quake, the impact of this trend is only beginning to be felt – just ask Eaze (the “Uber” of marijuana retail), who has been told by a California federal judge twice that its proposed $3.4 million settlement, based on the actions of a third party texting technology, is insufficient, and who was at the same time hit with another separate TCPA suit based on their current terms and conditions.
But it doesn’t take a seismologist to know the Big One(s) are right around the corner for the Cannabis industry, who should have noticed last week as an established cruise line company looked to consummate a $76 Million TCPA settlement from 2017, only to have the Plaintiffs’ counsel ask the court to bump its initial $15 million fee by another $3.49 million.
Assuming the TCPA is not radically altered by the upcoming Supreme Court decision, this article highlights the most relevant Cannabis-related TCPA class action activity to-date, and more importantly, some of the ways Cannabis companies can best avoid and defend these high exposure class action suits – including proper consent, opt outs, coordination with the Federal Do Not Call List, use of respectable marketing contractors and experienced marketing counsel, arbitration provisions, class action waivers, and the use of a more data-centric approach to customer data.
The Perfect Storm: TCPA + Cannabis Industry Factors
The TCPA was enacted in 1991 to combat a rising tide of unwanted telemarketing calls and faxes, and has since been expanded to cover calls to cell phones and non-consensual text messaging. The original intent was to restrict automated or prerecorded (robo) calls unless the receiving party consents to receive the call, though critics have noted that technology has outpaced the federal statutes regulating telemarketing, leaving marketers uncertain as to what is and is not permitted under what was already a complex and difficult law to comply with.
And the law certainly has some teeth – given the statutory damages of $500-$1,500 per call or text, one can see how settlements can be in the nine figures. The law also has some reach, essentially imposing strict liability even when the texts/calls are made by a third party marketing company on behalf of their client. As such, compliance with the TCPA was already difficult for even the most established industries and companies.
Nevertheless, with state-by-state regulations restricting the advertising methods in the nascent Cannabis industry, automated text messaging has become the preferred (or even necessary) method of reaching the primarily-younger consumers. Any cannabis consumer with a cellphone knows that these dispensaries and other services are often collecting phone numbers in connection with loyalty and rewards programs, which are then used for direct marketing purposes usually via SMS text messaging.
As such, even the more deliberate and careful Cannabis companies face the inherent difficulties of complying with (and avoiding class action exposure from) the TCPA. Making matters even dicier is the flood of new Cannabis companies looking to enter the market as quickly and directly as possible. Given all of the other regulation hurdles these companies need to jump over, it is the unknown or ignored TCPA speed bumps that could have the potential to cause the most damage regardless of whether the non-compliance is caused by recklessness or well-intentioned scrappiness.
For these reasons, a target has formed on the backs of Cannabis companies for Plaintiffs’ counsel looking to take advantage of the TCPA and the nascent Cannabis industry, which are often funded by private equity or high net worth individuals/celebrities. When these holding companies also perform managerial or advisory services, the potential for them to be named as Co-Defendants in these class actions increases significantly – proving that securities litigation may not be the only class action trend worth watching as the money behind marijuana companies expands and becomes more integrated.
Published: June 22, 2o20
Founder & Interim Editor of L.A. Cannabis News