What is Prop. 65 and Why Should Cannabis Businesses in California Care About it?

California’s Proposition 65 is a law passed by voters in 1986. It requires businesses to provide a “clear and reasonable warning” when they expose consumers to chemicals known to cause cancer, birth defects, or other reproductive harm. Violating Prop 65’s warning requirement can lead to penalties as high as $2,500 per day.

The Office of Environmental Health Hazard Assessment adopted new Prop 65 regulations in August 2016. Compliance with the new regulations is optional until August 2018, when they officially replace the previous regulations. This post only covers the updated regulations.

THE “PROP 65 LIST”

California publishes an official list of identified carcinogens and “reproductive toxicants” that trigger Prop 65’s warning requirements. The list currently includes approximately 900 chemicals, including cannabis smoke, which regulators added to the list as a carcinogen in 2009. Additional chemicals, such as pesticides and fungicides, may also find their way into cannabis products and trigger Prop 65 requirements.

WHO ENFORCES PROP 65?

The California Attorney General’s Office enforces Prop 65, but individuals acting in the public interest can also bring suit alleging a violation. Plaintiffs in such suits can receive 25% of the civil penalties collected, as well as attorneys’ fees. As a result, bringing Prop 65 lawsuits is a significant business in California, with total settlement payments in 2016 exceeding $30 million.

For example, in May 2017, a single, private plaintiff issued nearly 700 Prop 65 notices to medical cannabis dispensaries located throughout California. The plaintiff alleged that certain cannabis products contain the listed chemicals myclobutanil (a fungicide), carbaryl (an insecticide) and malathion (an insecticide). Such Prop 65 notices typically lead to settlements under which the alleged violators pay a civil penalty, “payment in lieu of civil penalties,” and attorneys’ fees. In almost every case, the attorneys’ fees account for most of the settlement amount.

WHEN DO CANNABIS COMPANIES NEED TO COMPLY WITH PROP 65?

Prop 65 applies to all companies with 10 or more employees.

However, cannabis companies of all sizes, however, should aim to comply with Prop 65 because they are likely to take on indemnification or other obligations via contract. In fact, Prop 65 regulations expressly authorize parties to “enter into a written agreement with the retail seller of the product to allocate legal responsibility among themselves for providing a warning for the product.

Primary responsibility for Prop 65 compliance lies with parties upstream from cannabis retail sellers: the producers, packagers, distributors, and manufacturers that package cannabis products and place them in the stream of commerce. Prop 65 requires these parties to either place warnings on the cannabis products or provide retailers in-store warning materials to display alongside the products.

While cannabis retail dispensaries do not have primary obligations under Prop 65, the duty to provide product warnings does fall to them under certain circumstances, such as:

  • when products are sold under brand or trademark owned or licensed by retailer;
  • when the retailer knowingly caused the chemical at issue to be present;
  • when the retailer received notice and warning materials from an upstream party but did not post or display them; or
  • when the retailer has actual knowledge of the potential consumer exposure, and there is no upstream party that has the burden of compliance (g., because no upstream party has 10 or greater employees).

Given the likelihood that Prop 65 will apply to at least some entities in the cannabis industry supply chain (i.e., those with 10 or more employees), all cannabis companies should be aware of Prop 65’s requirements. Companies should also consider assigning responsibility for Prop 65 compliance via contract.

If you have received a Morrison notice, or are interested in learning more about Prop. 65, please contact the cannabis industry regulatory compliance lawyers at Rogoway Law Group.

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