Marijuana and the Federal Trade Commission: When Will the Giant Awake from Its Slumber?

The FTC has so far been a slumbering giant when it comes to cannabis, but that will likely change soon.
The FTC has so far been a slumbering giant when it comes to cannabis, but that likely will soon change.

It’s no secret that in the wake of the 2013 Cole Memo federal agencies greatly vary in how they treat marijuana businesses. The Department of Justice has opted to “stand down” for now in those states with “robust state marijuana regulations.” The Internal Revenue Service will not relent on enforcing section 280e against cannabis businesses, even though to do so means marijuana businesses are treated far more harshly than other businesses. The Bureau of Reclamation blocks federally-regulated water for cannabis growers. The federal courts refuse to provide bankruptcy relief for marijuana businesses. The U.S. Patent and Trademark Office generally will not allow trademarks for marijuana products. The U.S. Postal Service will not permit advertisers to place marijuana ads in the mail. The Food and Drug Administration has gone after “CBD companies” for making allegedly unsubstantiated medical claims about their products. And yet the National Labor Relations Board has gone after dispensary owners for union busting, the Securities Exchange Commission is allowing ancillary businesses to trade in the pink sheets, and the Department of Treasury–through FinCEN–has slowly opened the door for banks to do business with those in the cannabis industry.

When it comes to cannabis, consistency is obviously just not very high on the federal government’s priority list.

This April, I will be speaking at the American Bar Association’s 2016 Antitrust Spring Meeting about cannabis and antitrust issues. And given the recent spike in cannabis product recalls, the danger of anticompetitive behavior in various marijuana-legal states, and the fact that states are starting to pay increased attention to marijuana advertising, I’ve begun to ponder how the Federal Trade Commission will treat cannabis products and cannabis businesses in the event of a consumer complaint or an antitrust violation.

The FTC’s self-proclaimed mission is to “prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.”

Because marijuana is still a federally illegal drug, the FTC can probably make a decent argument that it can ignore any consumer complaints regarding marijuana businesses. However, there’s also a chance that the FTC, which is fundamentally a consumer protection agency, will treat marijuana businesses and their products just like any other business. Under the Federal Trade Commission Act, one of the main standards guiding FTC enforcement is to prevent “.unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce.” Notice there’s no mention of lawful commerce, just commerce, which may leave the door open for FTC enforcement against state-legal marijuana businesses. And when it comes to cannabis and public policy, the FTC is much closer to the NLRB than, let’s say, the IRS. Both the FTC and the NLRB exist to protect individuals from certain business practices.

Though the FTC works in tandem with the DOJ’s anti-trust division, it is the only federal agency with jurisdiction over both consumer protection and competition in broad sectors of the U.S. economy. FTC rules cover almost every business practice related to services and goods in America. The FTC doesn’t work alone; the “FTC’s work is performed by the Bureaus of Consumer ProtectionCompetition and Economics. That work is aided by the Office of General Counsel and seven regional offices.” It’s also pretty easy to file a consumer complaint with the FTC, starting with its online complaint system.

So how should we expect the FTC to treat the marijuana industry? If the FTC chooses to fully exercise its jurisdiction over the cannabis industry, marijuana businesses around the country would likely find themselves at the mercy of the Fair Packaging and Labeling Act, the Franchise Rule, Guides Concerning the Use of Endorsements and Testimonials in Advertising (especially in the context of medical marijuana), Anticompetitive restrictions, and Guides Against Deceptive Pricing, among other comprehensive FTC rules and regulations. The FTC is also hot to trot on busting scammers, and it emphasizes going after companies that make guarantees concerning “cure-all treatments” for diseases like cancer and HIV/AIDS. I can think of several medical marijuana companies advertising such claims right now and surely those companies would be at big risk. Similar to the FDA, the FTC has taken the position that you better have the science to back up your ads or you will face the consequences, which can involve large fines or even jail time.

We are not aware of the FTC having yet taken a formal position on how it will handle consumer complaints against marijuana businesses and their products. Nonetheless, I expect that those complaints are already coming into the FTC and it is only a matter of time until the FTC starts responding to them.