Prepare, Set, Recall: What Cannabis Companies Should Consider When Recalling Products (Editorial)

Implementing recalls safely and quickly provides a unique opportunity to build your brand reputation in the consumer-centric cannabis industry and highlight your commitment to consumer safety and well-being.

Written by Joanna Bowman and Amy Rubenstein, Dentons

In 2023, legal cannabis sales in the state reached $29 billion. As more states begin selling adult-use cannabis each year, consumers gain more access, and cannabis companies offer more products, large and costly product recalls risks are also increasing. Three cannabis product recalls occurred in California between December 2023 and January 2024.

A strong internal compliance program provides the best way to prevent recalls by catching problems before they are sold, but even the best compliance efforts are not 100% effective.

Therefore, if a problem occurs with a product, a cannabis business facing a potential recall situation must ensure that the Three goals must be kept in mind: (3) conduct a controlled recall; and (3) confirm the recall. As an opportunity to build brand reputation and loyalty.

Best practices for managing cannabis recalls

Select Players: Develop your recall team.

Recalls require rapid coordination among multiple stakeholders, including consumers, regulators, and the media. A recall team consisting of members from senior management, manufacturing, communications, and legal covers the entire recall process. Some states require notification of the person responsible for implementing recall procedures in order to sell cannabis products.

Keep stakeholders updated: Communicate frequently with relevant authorities and notify insurance companies.

Certain states require notification of relevant authorities prior to a voluntary recall or within 24 hours of initiating a recall, while others require notification of certain adverse events.

Coordination with relevant state agencies will help reach affected consumers and minimize future risks to health and safety. Even when cannabis businesses conduct voluntary recalls, the process involves relevant state agencies and must follow agency guidance and regulations. Recalls can result in penalties, but self-reporting often demonstrates good faith behavior that can reduce potential penalties.

If your cannabis business has insurance that covers recall-related costs or general liability insurance that may cover recall costs, it is also important to promptly notify your insurance company.

An exploratory mission has begun: Identify affected products.

Recalls must identify all affected products, both sold and unsold. The scope of the recall will inform the most effective communication strategies, including individualized consumer outreach, point-of-purchase notifications, information on the seller’s website and social media, and statewide publicity.

Talk is cheap: Notify buyers and follow up.

Consumers who purchased the affected products must be identified and notified as soon as possible. The notice can include a description of the product, risks posed by use of the product, and steps the buyer should take (such as disposing of or returning the product).

Once a recall notice is issued, you must track responses, create a follow-up list, and consult with those who did not respond.

Make a deal: Offer consideration in exchange for release.

If allowed by state law, cannabis businesses may offer a full refund plus additional consideration, such as a credit against future purchases, in exchange for a release that includes an arbitration clause. This allows cannabis businesses to avoid costly public litigation and allows them to develop litigation avoidance strategies in advance. In the past few years, two class action lawsuits have been filed in the United States District Courts for the Southern District of Florida and the District of Oregon regarding the sale of mislabeled and/or contaminated cannabis products.

Make it entrenched: Issue a legal hold.

Even if a cannabis business does everything right in implementing a recall, a dissatisfied consumer, an enterprising lawyer, or a governing body may initiate a lawsuit or investigation. Companies must issue a litigation hold. This directs relevant employees to preserve information related to recalls and affected products in the event that litigation is reasonably foreseeable.

conclusion

Sales of consumer products involve the possibility of recalls. Cannabis companies can effectively prepare for recalls by strengthening their internal compliance programs and familiarizing themselves with the steps outlined above (and the associated regulatory landscape).

Implementing recalls safely and quickly provides a unique opportunity to build your brand reputation in the consumer-centric cannabis industry and highlight your commitment to consumer safety and well-being.

Joanna Bowman and Amy Rubenstein are attorneys in the Dentons Healthcare Group, where their practice focuses on cannabis.

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