Conducting a recall safely and expeditiously can present a unique opportunity to build a brand’s reputation in the consumer-focused cannabis industry and highlight commitment to consumer safety and well-being.
By Joanna Borman and Amy Rubenstein, Dentons
In 2023, state legal cannabis sales reached $29 billion. With additional states launching adult-use cannabis sales each year—where consumers have more access and cannabis businesses offer more products—the risk of large-scale, costly product recalls increases too. From December 2023 to January 2024, three cannabis product recalls occurred in the state of California.
While strong internal compliance programs offer the best way to prevent recalls by catching issues before sale, even the best compliance efforts are not 100 percent effective.
So when product issues happen, cannabis businesses facing a potential recall situation should keep three goals in mind: (1) protecting consumers’ health and safety, (2) conducting a well-managed recall to mitigate litigation risk and (3) viewing the recall as an opportunity to help build brand reputation and loyalty.
Best Practices to Manage a Cannabis Recall
Choose Your Players: Develop a recall team.
Recalls involve quick coordination across multiple stakeholders, such as consumers, regulators and the media. A recall team with members of senior leadership, manufacturing, communications and legal provides coverage across the recall process. Some states require notice of the personnel responsible for implementing any recall procedures to sell cannabis products.
Keep People in the Loop: Communicate frequently with the relevant agency and provide notice to insurers.
Certain states require notification to the relevant agency before a voluntary recall or within 24 hours of initiating a recall, while others request notification of certain adverse events.
Coordinating with the relevant state agency can be helpful to reach affected consumers as well as minimize future risks to health and safety. Even if a cannabis business is conducting a voluntary recall, the process must involve the relevant state agency and comply with any agency guidance or regulations. Recalls can result in penalties, but self-reporting often shows good faith conduct that can lessen potential penalties.
Where a cannabis business has secured insurance to cover expenses related to a recall, or even a general liability insurance policy that may cover recall expenses, providing prompt notice to an insurer is also critical.
Search Mission Activated: Identify affected products.
A recall must identify all impacted products, sold and unsold. In turn, the recall scope informs the most effective communication strategies—e.g., individual outreach to consumers, notice at point of purchase, information on the seller’s website or social media or a statewide bulletin.
Talk Is Cheap: Notify your purchasers and follow up.
Consumers who purchased impacted products must be identified and notified ASAP. The notices can contain a product description, risks posed by using the product and any steps a purchaser must take, e.g., to dispose or return the product.
Once recall notices are issued, responses should be tracked, and a follow-up list should be developed and consulted for non-responders.
Make a Deal: Offer consideration in exchange for release.
If permitted by state law, cannabis businesses can offer a full refund plus additional consideration, like credit for a future purchase, in exchange for release with an arbitration clause included. This can help cannabis businesses avoid costly and public litigation, and litigation-avoidance strategies can be developed in advance. Two class actions involving the sale of mislabeled and/or contaminated cannabis products have been filed in the past few years in the U.S. District Courts for the Southern District of Florida and the District of Oregon.
Make it Stick: Issue a litigation hold.
Even when a cannabis business does everything properly in conducting a recall, disgruntled consumers, enterprising counsel or a governing agency may initiate litigation or an investigation. A business should issue a litigation hold, which directs relevant employees to save any information related to the recall and the affected product, when litigation is reasonably foreseeable.
Conclusion
Selling a consumer product includes the possibility for a recall. Cannabis businesses can effectively prepare for a recall by strengthening their internal compliance program and familiarizing themselves with the steps above (as well as the relevant regulatory landscape).
Conducting a recall safely and expeditiously can present a unique opportunity to build a brand’s reputation in the consumer-focused cannabis industry and highlight commitment to consumer safety and well-being.
Joanna Borman and Amy Rubenstein are lawyers in Dentons’s Health Care group and focus their practice on cannabis.
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