Tech Thursday: Steps To Protecting Cannabis In An Industry Ripe For Lawsuits

While much of the cannabis industry—particularly the California market—hasn’t had to deal with product liability litigation yet, that’s changing. In the past, companies have been protected because cannabis was considered a gray market. Since cannabis is illegal under federal law, public policy was against enforcing a claim for an illegal activity. However, that protection goes away with regulation.

As the cannabis industry becomes more legitimate and companies become more stable with stable assets—not just cash-only accounts—claimants are going to be looking to sue. The liability is the same for producers of cannabis as it is for apple growers. It’s an agricultural product made for human consumption, and that always has risks associated with it.

So, the key becomes protection. We spoke to Lance Rogers with Greenspoon Marder’s Cannabis Law practice in California. He’s one of the county’s leading authorities on cannabis law, and as a litigator has handled an array of legal issues. He spoke with us about the steps cannabis producers, manufacturers, distributors and retailers need to take to mitigate exposure to product liability claims.

  1. Produce a Good and Safe Product: Step number one is to set up policies and procedures to ensure a good and safe product. “A lot of my clients in the Emerald Triangle are beginning to develop standard operating procedures to ensure quality control, and to ensure that the cannabis is safe for consumer consumption,” Rogers shared. “One of my clients calls it ‘Salmon-Safe,’ meaning that he makes sure his products are pesticide free and tested, and that the source and process meets a certain level of excellence.”
  2. Review Your Contracts: The second step is to review your contracts to determine the liability of your products and when the liability for the cannabis shifts from the grower to the manufacturer to the distributor and finally to the retailer. “There should be provisions for when the liability of the product transfers from one party to the next,” Rogers explained. “Additionally, there should be indemnification provisions in the contract discussing who pays the attorney fees in the case of litigation.”
  3. Setup an Insurance Policy: Every business needs general liability and product liability insurance, and that insurance should specifically cover cannabis products. “There are a lot of insurance products on the market that don’t cover what companies need,” Rogers revealed. “So, it’s vital that every company hire an attorney to review their individual policy for coverage.”
  4. Create a Recall Plan: In the event of a product liability claim, every company needs a recall plan. The plan should include the language provided to customers and retailers in the recall notice, as well as information about product disposal.
  5. Keep Detailed Records: Whether you’re keeping records about a recall or a product liability claim, a document retention policy is necessary. “A company should never destroy documents,” Rogers urged. “If there is a claim made for document destruction there can be severe sanctions in litigation.”
  6. Hire a Great PR Company: Finally, if you find yourself in a litigation battle, having a great PR company to manage your reputation is key because you can never get your reputation back once it’s lost.

At the end of the day, companies need to protect themselves by complying with state and local regulations since those regulations create a framework for producing a safe product and provide a safe harbor for litigation defense. “The point is that the cannabis industry is maturing, and leaders in compliance will outlast any competitors that are cutting corners,” Rogers said.

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