As a licensed attorney of twenty years with more than a decade of extraction equipment manufacturing and facility-design experience, I cannot overstate the legal perils of Good Manufacturing Practices (GMP) noncompliance for manufacturers of extract products and the dispensaries that sell them.
GMP compliance is not merely a bureaucratic hoop to jump through; it is a fundamental necessity that not only ensures product safety, quality, and consistency, but also shields the supply chain from lawsuits that can be devastating for any business. No entity in the supply chain is immune from the consequences of allowing products into the marketplace that pose health risks to consumers.
Consumer safety laws exist to protect the public, ensuring goods sold in the market are safe for consumption. Product liability is a key component of these laws, holding manufacturers, distributors, and retailers accountable for harm caused by their wares.
GMP compliance is essential in ensuring the quality and safety of cannabis products. GMP standards encompass a wide range of practices, including proper sanitation, precise control of manufacturing processes, and rigorous testing protocols.
While manufacturers are directly responsible for ensuring their processes and equipment adhere to GMP standards, liability for contaminated products extends across the entire supply chain. Dispensaries may believe they are merely resellers and thus shielded from liability; however, this is a dangerous misconception. Dispensaries can be held liable for selling contaminated products, even if the contamination occurred during manufacturing. Therefore, it is crucial for processors and retailers alike to demand adherence to GMP-compliant manufacturing standards.
Absent compulsory compliance with federal regulations due to the plant’s limited, state-to-state legality, processors thus far have been subject to only cannabis-specific state regulations such as testing for pesticides, heavy metals, microbial impurities, residual solvents, and potency. Some regulations include GMP-like standards for cleanliness, sanitation, contamination control, employee hygiene, and operational consistency. The regulations are necessary but, because they vary from state to state, they are incomplete, inconsistent, and inadequate to address comprehensive consumer safety as compared to federal requirements for food processing.
FDA cGMP vs. state regulatory standards
The U.S. Food and Drug Administration (FDA) sets forth comprehensive guidelines in the Code of Federal Regulations Title 21 (21 CFR), Part 117, for Current Good Manufacturing Practices (CGMP), hazard analysis, and risk-based preventive controls for human food.
21 CFR Part 117 outlines CGMP requirements for the food industry, setting nationwide standards for the methods, facilities, and controls used in the manufacture, processing, packing, or holding of food to ensure safety and cleanliness and provides a systematic approach to identifying potential food safety hazards, implementing preventive measures to control those hazards, and monitoring the effectiveness of the controls.
While tailored to food, the core principles of the FDA regulations are consistent with GMP requirements in other industries, such as pharmaceuticals, underscoring the universal importance of maintaining high standards of quality and safety in manufacturing.
21 CFR Part 117 is a critical component of the FDA’s efforts to enhance food safety in the United States and serves as a mandatory guide for all food manufacturers, processors, packers, and holders—but not for the cannabis industry.
While state regulations provide some level of consumer protection, there are no state regulations that compare to the comprehensiveness of CGMP standards set forth by the FDA. 21 CFR Part 117 provides a broader range of hazards and preventive controls; more detailed guidance about sanitation, hygiene, and facility management; and more extensive training and documentation to ensure all aspects of food safety are continuously monitored and maintained. The code also provides enforcement via a rigorous inspection and compliance regime to uphold high standards.
Even California’s extraction regulations, as promulgated by the California Department of Cannabis Control—arguably the most robust of all state regulations related to consumer safety—do not meet the FDA’s rigorous standards. As in all other legal states, California’s regulations are specifically tailored to the unique challenges of cannabis production. Hence, they do not cover the full spectrum of consumer safety issues as extensively as FDA guidelines do. Thus, from a consumer safety perspective, all state regulations fall short of FDA’s CGMP consumer safety standards, thereby increasing risk for the entire cannabis supply chain.
Product liability and the supply chain
Every entity in the wholesale supply chain, from processors and manufacturers to distributors and dispensary owners, must prioritize GMP to mitigate substantial legal and financial risks.
Product liability law holds every entity in the supply chain accountable for ensuring product safety. This means if a consumer is harmed by a product, everyone from the manufacturer that made the item to the distributor that delivered it and the dispensary that sold it can be held liable. Hence, all levels of the supply chain must ensure the products they handle are GMP-compliant, as the legal responsibility does not end at the manufacturing-and-packaging stage.
By adhering to GMP standards at the manufacturing level, the entire supply chain’s risk is substantially mitigated. On the other hand, knowingly or negligently distributing or selling a product that has not been produced under GMP standards drastically increases risk.
Noncompliance with GMP standards can expose businesses to numerous legal challenges. Consumers harmed by contaminated or substandard products can file lawsuits against the companies involved, leading to costly legal battles, settlements, or judgments. The financial penalties can be devastating, potentially bankrupting a business. In severe cases, noncompliance can result in criminal charges against responsible individuals within an organization.
The damages associated with product liability claims in our industry can be extensive. They include:
- Compensatory damages for medical expenses, lost wages, and pain and suffering.
- Punitive damages meant to punish egregious misconduct and deter future violations.
- Reputational damage that can impact both manufacturers and dispensaries as a result of making or selling unsafe or inferior products. A bad reputation can be difficult to rehabilitate in a competitive market.
Real-world examples
Several notable product liability cases in our industry illustrate the severe consequences of putting unsafe products into the supply chain.
In 2019, Cura Cannabis Solutions, one of the largest licensed companies in Oregon, was sued over allegations its Select brand of vape products contained harmful additives. The lawsuit affected both Cura and the dispensaries selling the company’s products, underscoring the importance of ensuring GMP compliance not just in-house but throughout the supply chain. The case resulted in a multi-million dollar settlement and significant reputational damage for both the company and the retailers.
In 2020, Curaleaf Inc. faced multiple lawsuits after several people were hospitalized subsequent to consuming mislabeled CBD products that contained high levels of THC. The incident resulted in a costly recall and legal settlements, demonstrating the critical importance of accurate labeling and thorough testing to ensure GMP compliance.
Urgent need for compliance
Considering these significant risks, it is of vital importance that both extract processors and dispensaries prioritize GMP compliance that meets FDA standards. By doing so, they will protect not only their businesses but also the health and safety of the consumers they serve. Ignoring these regulations is reckless in a landscape where the legal and regulatory environment is becoming increasingly stringent. Compliance is not just a legal requirement but also offers a competitive advantage by underscoring a commitment to quality and safety in a burgeoning industry.
Despite the clear downsides of noncompliance, many manufacturers in our industry are not using GMP-compliant facilities, equipment, or standard operating procedures. This exposes them—and by extension, their dispensary allies and others in the supply chain—to substantial liability risks. It is incumbent on manufacturers to invest in FDA CGMP-compliant operations and for dispensaries to verify the compliance of their suppliers.
Protect your business
To mitigate these risks, it is imperative to implement robust GMP practices at the manufacturing level.
Processors and manufacturers must ensure all aspects of production adhere to GMP standards, including employing standard GMP operating procedures, utilizing GMP-compliant processing equipment, and engaging in comprehensive employee training, regular audits and inspections, and meticulous documentation and recordkeeping. Distributors and retailers must verify all suppliers and products comply with GMP standards. This means conducting due diligence when selecting suppliers, requesting GMP certification from manufacturers, and performing regular audits to ensure ongoing compliance.
GMP certification must come from a recognized third-party organization. This not only provides an additional layer of assurance but also enhances credibility with consumers and regulators.
Rescheduling
The impending rescheduling of marijuana to Schedule III initially will impact only those entities engaged in pharmaceutical production authorized under Schedule III. Some cannabis labs will elevate all or part of their operations to engage in federally legal pharmaceutical research and product development, and those labs will need to meet FDA CGMP standards. Labs that continue to operate under state law will not be affected immediately by the change. However, the introduction of FDA standards to a segment of the industry signifies a significant shift for which all cannabis businesses should prepare.
While state-licensed labs may not face immediate regulatory changes, the implementation of FDA standards in pharmaceutical cannabis production is a harbinger of broader regulatory evolution. It is prudent for all processors, including those not yet directly impacted, to begin upgrading their operations. This proactive approach not only will position businesses ahead of potential regulatory changes but also address the critical issue of product liability today.
By upgrading to GMP standards now, processors can mitigate risks and demonstrate a commitment to excellence and consumer safety. Proactive compliance will not only protect businesses from potential legal ramifications but also enhance their reputation and trustworthiness in the eyes of consumers and regulatory bodies alike.
While rescheduling will impact only certain segments of the industry initially, the ripple effects of FDA standards likely will extend further over time. Embracing GMP compliance today is a strategic move that will safeguard against future regulatory changes and address the existing liabilities inherent in all consumer products. This forward-thinking approach is essential for any cannabis business aiming to thrive in an increasingly regulated and competitive market.
Don’t wait
In the dynamic and heavily scrutinized cannabis industry, ensuring GMP compliance is more than an inevitable regulatory necessity. It’s a strategic business imperative. By prioritizing GMP compliance throughout the supply chain, businesses will protect themselves from legal risks, safeguard their reputations, and contribute to the overall integrity of the industry by delivering safe, high-quality products.
As the industry continues to grow and evolve, the importance of GMP compliance will increase. Regulatory bodies likely will impose stricter standards and trend more toward rigorous enforcement. Consumers are becoming more informed and discerning, demanding higher quality and safety standards. Businesses that fail to adapt to these changes will find themselves at a significant disadvantage.
Investing in GMP compliance is an investment in the future. It demonstrates a commitment to quality and safety, builds trust with consumers, and positions your company as a leader in the industry. The risks of noncompliance are simply too great to ignore.
Avoiding disaster: a quick primer about strict liability.
The vast majority of states in the U.S. have adopted strict liability principles for product contamination cases with some variation as to details. Here’s a topline rundown on case law.
What is strict liability? Strict liability holds defendants liable for harm without the need to prove negligence or fault.
Who is liable? Anyone involved in the chain of distribution, from the manufacturer and distributor to the retailer, can be held liable if a defective product caused harm to a consumer.
- To establish liability, a plaintiff must demonstrate four things:
- The defendant was a manufacturer or seller of the product.
- The product was defective and unreasonably dangerous to the plaintiff.
- The defect was the proximate cause of the plaintiff’s harm.
- The plaintiff suffered actual harm.
What is the standard of proof? A plaintiff must show by a preponderance of the evidence that the defendant is liable. This “more likely than not” standard means the evidence must tip the scale only slightly in favor of the plaintiff. In other words, the plaintiff must show a likelihood of more than 50 percent that the claims are true.
What kind of damages can result? Compensatory damages for medical treatment, hospitalization, medications, and rehabilitation; lost wages; loss of earning capacity; pain and suffering. Non-economic damages may include emotional distress and loss of consortium. Other potential harms include incidental damages, consequential damages, and punitive damages (where the defendant’s conduct was especially egregious or reckless).
Are there other causes of action? In addition to strict liability, plaintiffs may have other potential causes of action including negligence, breach of express warranty, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, fraud and misrepresentation, violation of consumer protection laws, public nuisance, and unjust enrichment.
How can companies avoid disaster? Extraction lab processors and retailers should get to know each other better. Extraction labs need to ensure they follow strict GMP safety and quality standards and be transparent with dispensaries by providing compliance documentation and offering audits. Dispensaries should thoroughly check out their suppliers, ask for proof of GMP compliance, and stay in close communication so they can handle any safety issues or recalls quickly. By working together and maintaining high safety standards, both manufacturers and retailers can greatly reduce the risk of liability for selling contaminated products.
Marc Beginin, Esq., is founder and CEO of Prodigy Processing Solutions, a trailblazer in extraction technology. Prodigy’s state-of-the-art processing equipment meets or exceeds FDA cGMP and EU GMP standards for food and pharmaceutical applications. Previously, he established and then sold Precision Extraction Solutions after scaling a $45,000 investment into more than $40 million in annual revenue within five years.
