Marketing via Text May Expose Cannabis Companies to Substantial Legal Risks

Cannabis Companies Must Brave the Weeds of the TCPA

Guest post by Jeffrey Backman and Gregg Strock of Greenspoon Marder, LLP

Welcome to the TCPA

“The what? . . . TCPA? . . . No, no, we don’t use a call center.”

This is the reaction of a cannabis executive – just this month – when we explained to him that his company’s texting practices could be exposing the business to massive liability under the Telephone Consumer Protection Act (“TCPA”). After a few minutes of explaining the relatively low pleading standard that plaintiffs must meet to bring a TCPA claim and survive a motion to dismiss, and the potential expense of litigating a class action, we could see the fear of his mistake begin to glaze over his eyes. It doesn’t take more than a simple example of what a judgment for 10,000 violative texts could look like ($5 million for $500 per violation on the low end, and up to $15 million at $1,500 per knowing or willful violation on the high end) to make a person realize that the TCPA can stop a blooming business in its tracks.

The Marijuana industry, both medical and recreational, is growing at an amazing rate. As markets open up, competition becomes fierce and competitors must focus on marketing, amongst other techniques, to build a brand and attract consumers. The February 2019 volume of Marijuana Business Daily featured an article entitled Boost Your Message with Age-Specific Marketing, and the first advertisement in the magazine was for a CRM (customer relationship management) and lead database that is tailored toward the marijuana industry. A quick Google search returns numerous mass texting websites and apps that are targeting the marijuana industry and failing to disclose the dangers of the TCPA¹. While marketing via telephone is a great tool to get new customers and stay in touch with current ones, it can also be a fast-track to bankruptcy in the hands of small businesses (or even big ones) that don’t know about the TCPA.

In case it was not already clear, the TCPA applies to more than just call centers. On a basic level, the TCPA prohibits a few things, including making telemarketing calls or sending texts to residential subscribers of the Nation Do-Not-Call Registry, and initiating any text or call to a cellular telephone with a prerecorded or artificial voice, or an automatic telephone dialing system (“ATDS”). What’s an ATDS? Grab a coffee (or perhaps a sativa strand) and get ready for a few hours of research to get that answer. And when you’re done, grab a chamomile tea (and maybe some indica) as you realize the anxiety that you’re still not sure of the answer. The weeds of the TCPA are THICK. Depending on the jurisdiction you’re in, different courts may have different standards.

The Federal Communications Commission (“FCC”), which sets policy and issues regulations to implement the TCPA, can’t even set a straight answer.

But My Company Only Sells Medical Marijuana, so I’m Exempt, Right?

Maybe, but nobody really knows. In 2015, the FCC issued a ruling recognizing a TCPA exception for certain calls and texts that have an exigent healthcare purpose². However, courts have interpreted the exception narrowly, limiting it to only the enumerated circumstances in the 2015 order: appointment and exam confirmations and reminders, wellness checkups, hospital pre-registration instructions, pre-operative instructions, lab results, post-discharge follow-up intended to prevent readmission, prescription notifications, and home healthcare instructions. If the call or text includes “telemarketing, solicitation, or advertising content, or . . . accounting, billing, debt-collection, or other financial content” in any way, then it may not fall within the exemption. So, simply operating as a pharmacy or a physician’s practice does not protect a business. For example, in Florida, doctors are competing for patients as a steady stream of revenue due to the requirement that qualified patients renew their doctor recommendations every 70-270 days. These doctors may be looking to stand out by being technically savvy and texting patients about their renewal periods. Additionally, it is unclear what effect the classification of marijuana as an illegal substance under federal law would have on application of the exigent healthcare exception.

Recent Examples of Cannabis Companies Defending Against TCPA Claims

The marijuana industry has already begun to see its fair share of TCPA actions. For example, in 2018, Eaze Solutions, Inc. was hit with two class actions just three months apart from each other alleging that text message advertising of its marijuana delivery app violated the TCPA⁴. The first case is still pending, and the second will soon be dismissed pursuant to a settlement for an undisclosed amount. Natura Miracles, Inc. was sued in Florida under the TCPA for texts that it allegedly sent advertising CBD products⁵. The case was settled in early February 2019. The same happened to P2C3, LLC, a Colorado company doing business as The Secret Stash: Progressive Medicine, and the case settled just two months after filing⁶. Hobby Farms, LLC, doing business as A Cut Above, was targeted by the same plaintiff in 2018⁷. Curaleaf, Inc. was just sued this month in Florida for allegedly sending sixty (60) text messages advertising its various sales to an individual known by TCPA practitioners as a “professional plaintiff.” Class actions, with their attendant costs and substantial exposure, are sometimes used by plaintiff lawyers in the hopes of pressuring defendants to settle. The tactic is considered by some to be “judicial blackmail,” but it continues to happen nonetheless. Professional plaintiffs – along with volume-filing attorneys – have become all too common, taking advantage of companies who don’t know enough about TCPA compliance, and arguably entrapping even those that do.

So who can trim the weeds of the TCPA for you? Shameless plug: lawyers. Nerds who research these issues day in and day out, who assist companies to implement policies to be TCPA-compliant, and who go to court to defend their clients from the TCPA’s sobering effects. If cannabis companies want to grow their buds and their brands long term, they cannot approach marketing with a short term view.

¹For example, offers to keep “customers coming back to the counter with money in hand with Business Texter” and touts its automatic texting features.  Notably missing from the home page and only mentioned in passing in a subpage is the need to comply with local and federal laws such as the TCPA.  This article is not intended to suggest that all calling or texting is violative of the law; rather, it’s to notify the reader that there are in fact laws that govern contact via telephone.

²See In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 30 F.C.C. Rcd. 7961, 8031-8032, 2015 WL 4387780 at *49-50.

³ACA Int’l v. Fed. Commc’ns Comm’n, 885 F.3d 687, 711 (D.C. Cir. 2018).

⁴Williams v. Eaze Solutions, Inc., 3:18-cv-05176-JD (N.D. Cal. 2018); Lloyd v. Eaze Solutions, Inc., 3:18-cv-05176-JD (N.D. Cal. 2018).

⁵Miller v. Natura Miracles, Inc., 0:18-cv-61987-KMM (S.D. Fla. 2018).

⁶Stinnett v. P2C3 LLC, 9:18-cv-81399-DMM (S.D. Fla. 2018).

⁷Stinnett v. Hobby Farms, LLC, 9:18-cv-81449-RLR (S.D Fla. 2018).

About the authors:

Jeffrey Backman is a partner with the Litigation practice at the law firm Greenspoon Marder. Jeffrey focuses his practice on complex class action defense and general commercial litigation. He advises clients in legal compliance matters and is at the forefront of the legal landscape involving the telemarketing industry. He has defended clients before all regulatory bodies such as the Federal Trade Commission, the Federal Communication Commission, the Consumer Financial Protection Bureau, and States Attorneys General.

Gregg Strock is an associate in the Litigation practice at the law firm Greenspoon Marder. Gregg focuses his practice on commercial litigation and complex class action defense. Gregg graduated magna cum laude from Florida International University College of Law where he served as an Articles Editor on the FIU Law Review.

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