In the last few years there has been a sharp increase in individual and class action Telephone Consumer Protection Act (“TCPA”) lawsuits targeting cannabis and hemp companies, oftentimes just for sending a text message.
Enacted in 1991, the TCPA was designed to restrict autodialed telemarketing communications via telephone and fax made without the recipient's consent. In pertinent part, the TCPA makes it “unlawful for any person within the United States… to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service …, unless such call is made solely to collect a debt owed to or guaranteed by the United States.”1
As technology and communications have progressed, the Federal Communications Commission (FCC) expanded the TCPA's reach to govern text messages. This was further solidified by the U.S. Court of Appeals for the Third Circuit, which explained “[a]lthough the text of the statute refers only to ‘calls'…under the TCPA, that term encompasses text messages.”2 The court continued, that per the TCPA, “[t]he term ‘automatic telephone dialing system' means equipment [with] the capacity – (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”3
Critically, these TCPA lawsuits are generally based on seemingly innocuous activities. For example, most of the suits have stemmed from a cannabis company collecting a consumer's number when they walk through the door or sign up on an app.4 Even though the customer provided the business with their number, it is still a violation of the TCPA to contact them if the collection form lacked the proper consent language.5 Other scenarios giving rise to TCPA liability have involved illegally texting non-consumers who have not given consent to receive mass text messages,6 texting non-consumers who never consented due to third-party input error, or texting clients who are either on the federal do not call list or who opted out of being texted.7
It is no surprise that the industry has seen a surge in these lawsuits. The violations can cost anywhere from $500 to $1,500 per text, per plaintiff. For example, if a business sent 10 text messages to one consumer, there is a potential statutory fine of $5,000 to that single consumer if they can prove a TCPA violation. These fines can rise steeply if there are class action claims. If the consumer can prove the TCPA violation was done “willfully or knowingly,” the fine can go up to $1,500 per text, per plaintiff.
What Cannabis Companies Can Do to Minimize Risk
Given the proliferation of these lawsuits, the cannabis industry should take note that it is a target for TCPA plaintiffs' attorneys. As businesses continue to grow and combine, they must not overlook legal restrictions on communicating with consumers. Cannabis companies need to be proactive and ensure they are minimizing the risks of potential TCPA lawsuits against them. This is particularly salient given that most commercial general liability or other business type insurance policies explicitly exclude TCPA claims from coverage, leaving the business with sometimes crippling defense costs and potentially large damage awards.
Some guidelines that cannabis companies would be wise to follow include:
- Carefully reviewing any applicable internal terms and conditions that apply to the manner in which they engage with customers and how they obtain contact information.
- Assess their compliance and risk mitigation protocols to decrease likelihood of becoming targets for TCPA litigation.
- Maintain or transition to a system involving manually dialed phone numbers without the use of pre-recorded messages.
- Obtaining consent for the type of message at issue: (a) prior written consent for any telemarketing and (b) prior express consent e.g., for purely informational messages.
- Ensure compliance with do-not-call lists and requests.
- Implement a data mapping policy so that data collection is intentional and prior express written consent is confirmed—this will also help with California Consumer Privacy Act (CCPA) compliance.
- Check marketing contracts for applicable indemnity and defense language should a lawsuit arise, and vet business partners for regulatory compliance.
As additional TCPA claims are likely to follow, it is critically important for the cannabis industry to take proactive steps to understand what is and is not allowed under the TCPA. Cannabis businesses that choose to communicate with consumers via phone or by text must understand the regulations governing the TCPA to avoid or at least minimize their liability exposure.
Manzuri Law is monitoring this important trend, and will continue to monitor how courts address and resolve these claims. Our attorneys are available to consult regarding best practices and procedures to mitigate potential exposure and liability under the TCPA.
1 Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227.
2 Gager v. Dell Fin. Servs., LLC, 727 F.3d 265 (3d Cir.2013).
4 See, e.g., Komaiko, et al. v. Baker Technologies, Inc., et al., 4:19-cv-03795 (N.D. Cal.).
5 See, e.g., Camacho v. Hydroponics, Inc., 5:20-cv-00980 (C.D.Cal.); Derval v. Xaler, 2:19-cv-01881 (C.D. Cal.); Jackson v. Euphoria Wellness LLC, 3:20-cv-03297 (N.D. Cal.); Lloyd v. Eaze Solutions Inc., 3:18-cv-05176 (N.D. Cal.); Rohrer v. Phenos Collective Inc., 1:20-cv-00392 (E.D. Cal.); Torrez, et al. v. DeliverMD, 4:20-cv-07747 (N.D. Cal.); Williams v. Eaze Solutions Inc., 3:18-cv-02598 (N.D. Cal.).
6 See Brooks v. Curaleaf, Inc., 1:20-cv-06323 (S.D.N.Y.); Baker v. Native Hemp Co., 20-cv-00115 (D.Vt.).
7 See, e.g., Theisen v. AEY Capital LLC, 2:20-cv-11965 (E.D. Mich.) (Theisen seeks to represent two classes--one representing individuals who received text messages from the defendant without their written consent for the four preceding years and another class of individuals who continued to receive text messages after sending the defendant a request for the messages to stop).