By Kathleen E. Finnerty, Esq.
The cannabis industry is rife with legal complexities and a maze of federal, state and local laws. In additional to the purely cannabis regulations, cannabis businesses must also comply with numerous other laws relating to their facilities, employees and products.
Among those product laws that this new industry must encounter in California is Proposition 65. In just the month of May 2017 over 700 “Notices of Violation” were issued to cannabis businesses across the state. Those notices each accused cannabis dispensaries and distributors of failing to properly warn their customers, as required by Proposition 65, that marijuana smoke is a cancer causing chemical, and that certain edibles containing Malathion, Carbaryl or Myclobutanil constituted “reproductive toxicants”.
WHAT IS PROPOSITION 65?
Proposition 65 is the Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as “Prop. 65”) and requires the governor to publish an annual list of known carcinogenic or reproductively toxic chemicals.
Chemicals are only added to the list if they are proven to either cause cancer or reproductive issues. There are currently more than 800 chemicals covered in the Proposition 65 list located on the California Office of Environmental Health Hazard Assessment (“OEHHA”) website. http://www.oehha.ca.gov/prop65.html.
The law states that:
No person in the course of doing business shall knowingly or intentionally expose an individual to a chemical known by the state to cause cancer or reproductive toxicity without first giving a clear and reasonable warning to such individual…
The exposure may result from a person’s acquisition, purchase, storage, or other foreseeable use of a consumer good, or any exposure that results from receiving a consumer service.
ONLY MARIJUANA SMOKE IS LISTED ON THE PROP. 65 LIST.
Although a plausible argument can be made that no retailer knows how their products will be used, it is a rational proposition that a retailer has reason to believe that at least some of the cannabis they sell will be smoked, rendering the products subject to regulation under Prop. 65.
DOES PROP. 65 APPLY TO YOUR BUSINESS?
Prop. 65 will apply to any company with 10 or more employees. Under the law, a notice of violation must be sent to the business, district attorneys and to the California Attorney General’s office at least 60 days before a lawsuit can be filed. Such notices are often referred to as “60-day” notices.
Each of the entities receiving a copy of a notice of violation is permitted 60 days in which they can investigate and elect whether or not to file a lawsuit. In the case that none of those governing bodies wishes to file suit, the law allows local citizens to file a civil action for penalties that cannot exceed $2,500 per day for each violation, plus attorney’s fees and injunctions.
The most typical targets of Prop. 65 actions are companies that manufacture, distribute or sell retail consumer or commercial products. However, both retail online or brick and mortar stores are subject to the law and its regulations.
In order to adequately defend itself, the business will have to prove the absence of the chemical, that the level chemical in their product falls within an exemption zone or that they do have an adequate warning for the presence of the chemical.
However, the overwhelming majority of these cases are settled out of court; unfortunately, such settlements are often the least expensive and most rsource efficient solution.
NEW RULES EFFECTIVE AUGUST 30, 2018.
OEHHA, the agency that oversees the enforcement of Prop. 65, recently released new regulations in late 2016 that become effective after August 30, 2018.
These new regulations and requirements will provide customers with more precise notice of the chemicals that makeup the products sold in the state. In the interim, before these new regulations are enacted, businesses have two options regarding how they wish to move forward.
The first is to continue business as usual with the current regulations and get into compliance later. The second is to get into compliance with the new regulations immediately and reduce the risk of lawsuits or punishment in the future.
The new regulations shift burden to warn from the retailer, except in certain instances, to the manufacturers and distributors. However, as long as the consumer receives adequate warning, the retailer and distributor/manufacturer can reach a contractual agreement about how to allocate the legal responsibility for providing the warning.
Under the new regulations, warnings must be provided through signs or product labeling where it is applicable. Warning signs under the new regulations must be prominently displayed and conspicuous, in order to make them as likely to be spotted and read by customers as possible.
The warning must be clearly written and understandable for the average customer. Your warning may include supplemental materials that provide the customer with information that identifies the source of exposure or points out ways to avoid exposure to the problem chemicals.
However, supplemental materials will not be an adequate substitute for clear warning signs and product labeling.
The new exposure warning messages must include the following:
(1) A symbol consisting of a black exclamation point in a yellow equilateral triangle with a bold black outline. Where the sign, label or shelf tag for the product is not printed using the color yellow, the symbol may be printed in black and white. The symbol shall be placed to the left of the text of the warning, in a size no smaller than the height of the word “WARNING”.
(2) The word “WARNING” in all capital letters and bold print, and:
(A) For exposures to listed carcinogens, the words, “This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov.”
Additionally, on-product warnings for products containing a known cancer-causing agent require the symbol required in §25603(a)(1), the word “WARNING” in bold capital letters, and the following words: “Cancer – www.P65Warnings.ca.gov.” The name of the listed chemical is not required to be printed on a product warning label.
There are several differences between the current and new system of warning regulations which can be read below:
- Under current regulation there is no requirement for your business to list the chemical for which you are warning. Whereas in the new regulations your business is required to list the chemical for which the customer is being warned.
- The warning sign has been changed and will require a yellow or black and white triangle surrounding an exclamation point.
- The burden for warning the customer has been shifted from the retailer to the manufacturers and packagers where possible, while allowing the manufacturer/packager and the retailer to allocate legal responsibility for warnings.
WHAT CAN YOU DO?
Be sure to clearly post signs in dispensaries as well as other facilities where consumers are present warning individuals that there may be chemicals in the facility that are linked to causing cancer or reproductive toxicity.
The products have to be either marked on their packaging or have a notice posted reasonably close to the product that clearly identifies the possibly dangerous chemical or chemicals.
The notices need to be clearly identifiable by the customer when they are making a decision on whether or not they will buy the product.
Prop. 65 warnings can also be provided on receipts, customer handouts or collective membership agreements.
Any agreements with suppliers should include indemnification of the retailers or others in the sales chain to provide defense and indemnity protection in case a Prop. 65 action is filed. If your business receives a notice of violation it is important to contact an experienced lawyer capable of providing quality assistance defending any Prop. 65 notices or lawsuits.
It is also wise to to notify your local cannabis association so they warn others or help association members join forces to defend against the claims in as cost efficient a manner as possible.
This article is intended as general information and not legal advice. Please contact a lawyer to evaluate your legal needs.
Kathleen E. Finnerty is a respected California lawyer, experienced in handling Prop. 65 matters. She is currently representing dozens of clients in similar matters and can be contacted at KFinn@KFinnertyLaw.com or 916.899.5072.