California Trade Regulations – Conkle, Kremer & Engel, PLC

Prop 65 Settlements Predominantly Benefit Claimants’ Lawyers

Over the last several years, the California Attorney General’s Office (OAG) has released annual reports of Proposition 65 settlements through 2017. These reports make one thing clear – Proposition 65 continues to be a lucrative source for private Proposition 65 claimants and their lawyers, as the total settlement payments continues to rise through the years.

In the past, we noted that private Proposition 65 claimants and their lawyers collected at total of $17 million in settlement payments (comprised of civil penalties, “PILPs” or “Payments in Lieu of Penalties” [also known as “Additional Settlement Payments”] and attorneys’ fees and costs) in 2013, and $20 million in 2012. The trend since then has been upward on all fronts, with one notable recent qualification regarding PILPs.

Proposition 65 contemplates that private claimants will share any civil penalties collected, with 75 percent going to the California Office of Environmental Health Hazard Assessment (OEHHA) and 25% being kept by the private claimants. However, Prop 65 claimants are allowed an alternative remedy of PILPs, in which the claimants can pocket 100% of the PILPs and share nothing with OEHHA. All private claimants needed to do is establish that the PILP payments will go to fund some kind of activities with a nexus to the basis for the litigation, and show how those funds would be spent. Until recently, this was not a big obstacle for Prop 65 claimants. As can be seen from the OAG reports, many Prop 65 claimants are special-purpose entities that contend their own business of pursuing Prop 65 claims serves the environmental interests they are trying to protect through pursuit of more Prop 65 claims. As a result, these entities could pocket the PILP money to self-fund their own activities to make more Prop 65 claims. Being able to keep all of the PILP money, rather than the alternative of having to give 75% of civil penalties to OEHHA, undoubtedly made PILPs very attractive to Prop 65 claimants. Perhaps the only bright spot in the chart below is the significant reduction (by more than 50%) in PILP recoveries, which followed an amended regulation that went into effect on October 1, 2016 to tighten requirements for PILP settlements. We’ll develop more on this amendment and its effects in a future blog post.

Finally, but clearly most significantly in terms of dollars spent on settlements of Prop 65 claims, private claimants’ lawyers are entitled to recover reasonable attorneys’ fees and costs. As seen in OAG reports, and displayed graphically below, this attorney fee recovery constitutes by far the largest portion of Prop 65 settlements.

2014-2017 Summary of Proposition 65 Resolutions (Updated from OAG Data as of 3/25/2019) — 2014-2017 Summary of Proposition 65 Resolutions
(Updated from OAG Data as of 3/25/2019)

Since 2012, total settlement payments have increased substantially, reaching their high-water mark in 2016 but not declining very much in 2017 (2018 figures have not yet been fully released by OAG). Between 2014 and 2017, Prop 65 settlement payments totaled well over $25 million per year. Overall, the settlement payments are comprised of attorney fee recoveries to claimants’ lawyers, PILP recoveries to claimants, and a smaller number of civil penalties that are shared 25% with claimants and 75% with OEHHA. In sum, every dollar shown in the chart below, other than the OEHHA portion shown in red, has gone to either the Prop 65 claimants or the claimants’ lawyers:

When viewed graphically, it becomes all the more evident that the vast majority of Prop 65 settlements benefit claimants and their lawyers, not OEHHA or any other government agency charged with protecting the public. Questions must arise whether this was really the intent of Proposition 65, however beneficent was its purpose.

2016 was the biggest year for Prop 65 private claimants, according to data released by the California Attorney General’s Office. In 2016, private claimants settled 760 cases, suing smaller businesses and larger entities like K-Mart, Michaels, Williams-Sonoma, and Twinings. The settlements for that year totaled over $30 million.

Of the $30 million collected in settlement payments in 2016, attorneys’ fees made up more than $21.5 million, or 71.5% of all private settlements. In addition, while civil penalties amounted to just over $5 million, or 18% of all private settlements, private claimants can take 25% of any civil penalty assessed as a “bounty.” In 2016, the civil penalties retained by claimants represented a sum of $1,361,500, or 4.51% of all private settlements. PILP money made up 10.42% of all private settlements. That means approximately $3.1 million landed in the hands of private claimants and their attorneys, in addition to the attorneys’ fees and civil penalty bounties they received.

A few firms did particularly well that year. In 2016, The Chanler Group brought in 242 settlements for over $7.4 million. 83% of this figure, or over $6 million, was paid out in the form of attorneys’ fees and costs. Brodsky & Smith brought in 99 settlements for nearly $2.5 million. 90% of the nearly $2.5 million, or $2.2 million, in settlement payments went to the lawyers as attorneys fees and costs.

Some claimant representatives obtained settlements that were not quite as disproportionately in favor of attorneys’ fees and costs. For example, the Center for Environmental Health brought in 93 settlements in 2016, for a total of $4 million, broken down as follows: 11% as non-contingent civil penalties, 16% as PILP payments, and 74% as attorneys’ fees and costs. Similarly, the Consumer Advocacy Group brought in approximately $4 million across 71 settlements, recovering 11% as non-contingent civil penalties, 14% as PILP payments, and 75% as attorneys’ fees and costs.

The Environmental Research Center brought in 55 settlements for nearly $5 million, and the breakdown of payments was split more evenly: 36% as civil penalties, 31% as PILP payments, and 33% as attorneys’ fees and costs.

In 2017, private claimants continued to pursue Prop 65 claims, settling or obtaining judgments in 693 cases. The recoveries totaled more than $26 million. As can be readily seen in the chart above, although the total claimants’ recoveries were somewhat lower, they were on par with 2015 recoveries. Further, attorneys fees were proportionately even higher in 2017 than in preceding years, and the reduction was primarily in the PILP recoveries. Attorneys’ fees made up more than $20 million, or 76% of all private settlements, and civil penalties retained by claimants represented an additional $1,431,496 or 5.4% of all Prop 65 recoveries.

If these trends continue, total Prop 65 settlement payouts will continue to rise, imposing the “unnecessary burdens for businesses” that “are cause for public concern,” as the OAG noted in 2014. Conkle, Kremer & Engel routinely represents businesses against Prop 65 claims and lawsuits brought by private claimants, and works with businesses to develop compliance strategies to minimize the risk that they will be future targets of Prop 65 claimants.

5
FEB

Beauty Industry, California Trade Regulations, Fashion, Food, Craft Beer and Nutrition, Manufacturing, Personal Care Products, Proposition 65, Real Estate & Construction, Regulatory Compliance, Technology, Uncategorized

Attorneys' Fees, Brodsky & Smith, CAG, California Attorney General's Office, CEH, Center for Environmental Health, Chanler Group, Consumer Advocacy Group, Environmental Research Center, ERC, K-Mart, Michaels, OAG, OEHHA, Office of Environmental Health Hazard Assessment, Payment in Lieu of Penalties, Payment in Lieu of Penalty, Payments in Lieu of Penalties, Payments in Lieu of Penalty, PILP, PILPs, Prop 65, Proposition 65, Settlements, The Chanler Group, Twinings, Williams-Sonoma

California Expands Sexual Harassment Training Requirements to Most Employers

Posted by: Conklelaw

As usual, a new year means new laws, especially in California. For 2019, one law that all employers need to be aware of is SB1343, which amended Government Code Sections 12950 and 12950.1 to impose new sexual harassment training requirements on most employers. Previously, only employers of at least 50 employees were required to train their supervisory employees. Starting now, if you have 5 workers, including both employees and contract workers, you have to comply with several training requirements:

– Within the next year, all supervisory employees must complete two hours of sexual harassment training.

– The definition of “supervisor” is fairly broad and covers more than just your managers. Under California Government Code 12926(t), “Supervisor” means “any individual having the authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

– Within the next year, all nonsupervisory employees must complete one hour of sexual harassment training.
– For all employees, the training must be provided within six months of the employee’s assumption of a position with the company.
– After January 1, 2020, each employee must receive sexual harassment training once every two years.
– Beginning January 1, 2020, seasonal and temporary employees, and any employees hired to work for less than six months, must receive sexual harassment training within 30 calendar days after the hire date or within 100 hours worked, whichever occurs first. If the temporary employee is employed by a temporary services employer (i.e., a temporary staffing agency), the temporary services employer is required to provide this training, not the client.

California’s Department of Fair Employment and Housing (DFEH) is required to develop online sexual harassment training courses. DFEH has stated that it expects to have such training programs available on its website by late 2019. If they are available on time, employers can direct their workers to those online courses, but otherwise employers must develop or provide their own training.

Employers should also take this as a reminder to check your work site and make sure you have prominently displayed the required posters. For example, California law requires employers to display the DFEH poster regarding workplace discrimination and harassment in a prominent and accessible location in the workplace, and to distribute a sexual harassment prevention brochure to their employees.

Constant vigilance is required for employers to comply with rapidly changing requirements. Employers should consult with experienced counsel particularly in regard to interpretation of new requirements such as these. Conkle, Kremer & Engel attorneys are experienced with counseling employers in the face of the changing legal landscape in employment law. CK&E attorneys help companies identify and reduce areas of exposure to liability for employment claims, including wage and hour, discrimination, harassment, and retaliation claims.

1
JAN

Banking and Finance, Beauty Industry, California Trade Regulations, Contracts, Business and Finance, Discrimination, Employment Law, Fashion, Food, Craft Beer and Nutrition, Industries Represented, Manufacturing, Real Estate & Construction, Regulatory Compliance, Sales, Technology

California Department of Fair Employment and Housing, California Government Code Section 12926, California Government Code Section 12950, DFEH, Employee Posters, employee training, Employment Posters, SB 1343, sexual harassment, supervisors, training, workers, Workplace Discrimination, Worksite Posters

Manufacturers, Suppliers and Resellers Must Plan for California’s New Cruelty Free Cosmetics Act

Posted by: Eric S. Engel

Almost no one favors animal testing for cosmetics. The beauty market trend has been strongly away from animal testing, as demonstrated by the recent announcement of Coty, Inc.’s CoverGirl brand being certified cruelty free. That’s why the personal care products industry supported California’s new Cruelty Free Cosmetics Act, SB 1249, which was unanimously passed by the California State Assembly and signed into law by Governor Brown on September 28, 2018. The new Act does not take effect until January 1, 2020, but compliance will require cosmetics businesses to plan ahead. The new Act may present some thorny and perhaps unexpected issues and risks for importers, manufacturers, distributors and resellers of beauty products and ingredients in California.

The new Act is found at Section 1834.9.5 of the California Civil Code, immediately following the existing animal testing law that has been in effect since 2000. That existing law, Section 1834.9, continues to prohibit manufacturers and testing facilities from using animal testing when alternative methods have been scientifically validated and recommended by responsible agencies. But the existing law has limited application, and the new Act significantly expands on the prohibitions of animal testing for cosmetics and their ingredients.

Generally, the Act prohibits a manufacturer from importing, offering or selling in California any cosmetic that “was developed or manufactured using an animal test that was conducted or contracted by the manufacturer, or any supplier of the manufacturer, on or after January 1, 2020,” with specified exceptions. The first observation must be that the new Act will not apply to any manufacturer’s cosmetic or ingredient that was previously subject to animal tests. The natural effect is that the Act generally does not apply to a manufacturer’s existing cosmetic ingredients and product formulations, even if the cosmetic or ingredient is manufactured after January 1, 2020.

However, manufacturers and importers need to note that the Act certainly can affect development of new cosmetic formulations, and so it will have a strong impact on use of innovative cosmetic ingredients in new or reformulated products. This can impede participants in the personal care products industry who strive to develop new ingredients to improve and differentiate their products. Scientifically-reliable alternative non-animal test methods can be slow to develop and receive approval by regulatory agencies, so the inability to conduct animal testing could inhibit the introduction of new cosmetic ingredients, particularly potentially complex ingredients such as new surfactants or polymers.

There are some exceptions to application of the new Act, but they may defy easy workaround solutions. The first major exception is a multi-step assessment that exempts application of the Act if the manufacturer can establish all of these elements:

An animal test is required by a U.S. federal or state regulatory authority, and no non-animal alternative testing method is acceptable;
The ingredient tested is in wide use and cannot be replaced by another ingredient with similar function; and
The need to conduct animal tests is justified to address a specific substantiated human health problem and supported with a detailed research protocol.

The multiple elements required for this exception are so demanding that its practical utility is doubtful. But there are two additional exceptions that on first blush appear deceptively simple to apply: First, if animal testing is required by a foreign regulatory authority for export to that country, the animal-tested product does not for that reason violate the new Act. This was an important exception favored by the industry, because without it cosmetic products could not be readily exported to foreign markets, like China, that require animal testing. The second exception applies if animal tests were required to be performed on an ingredient for non-cosmetic purposes. In other words, if some animal testing was done on the ingredient for non-cosmetic purposes, or was required for exporting the product, that animal testing in itself will not preclude use of that ingredient in a cosmetic product.

On their face, these last two exceptions seem like they create large loopholes in the Act. But looks can be deceptive. Both of these exceptions are narrowed by an additional term that prohibits the manufacturer from relying on evidence of the animal testing to substantiate the safety of cosmetics sold in California. California and the FDA require that “Each ingredient used in a cosmetic product and each finished cosmetic product shall be adequately substantiated for safety prior to marketing.” (21 CFR 740.10(a)) There are few meaningful guidelines about what “adequate substantiation” of safety means, or exactly what records are required to be maintained to show such substantiation, but it is clear such substantiation must exist “prior to marketing.”

So the effect of the new Act is to prohibit manufacturers offering products in California from relying on animal testing as part of their “adequate substantiation of safety” before selling their products, even though the animal testing itself did not violate the Act due to the noted exceptions. This limitation effectively requires manufacturers to somehow show separate, non-animal testing to have adequate substantiation of the safety of their ingredients and products prior to marketing. That in turn renders the animal testing that was permitted under the exceptions useless to support the safety of cosmetic sales in the California market.

The safety substantiation requirement has yet another twist that may present a significant risk to manufacturers selling cosmetics in California after the new Act becomes effective: Although no federal or California state law specifies how or what documentation of safety must be maintained, the new Act both permits and motivates district attorneys and city attorneys, upon their determination of “a reasonable likelihood of a violation,” to “review the testing data upon which a cosmetic manufacturer has relied in the development or manufacturing” of the product sold in California. Given that violators can be fined $5,000 initially plus $1,000 per each day that a violation continues, which fines are payable directly to the city or county attorney’s office, district attorneys and city attorneys have powerful motivation to aggressively pursue possible violations.

It seems the legislature was sufficiently concerned about this “adequate substantiation” issue that it was felt necessary to specify in the Act that a manufacturer “is not prohibited from reviewing, assessing or retaining evidence from an animal test conducted” for non-cosmetic purposes (though, oddly, the Act says nothing about that for the separate “foreign regulatory” exception). So just having an animal test in the manufacturer’s file may not violate the Act, but the manufacturer still cannot rely on those tests when a DA or city attorney comes calling. Manufacturers must determine how they will maintain records to show adequate substantiation of the safety of all of their ingredients and product formulations, prior to marketing, without running afoul of the Cruelty-Free Cosmetics Act.

The new Act does not itself create a new private legal claim, which means that (unlike some other California consumer protection statutes like Proposition 65) bounty-hunter plaintiff lawyers will not have direct motivation to pursue claims under the Act. However, that has not stopped creative plaintiffs’ attorneys from bootstrapping other consumer product regulatory violations as bases for civil lawsuits, such as “Unfair Business Practices” claims under Business & Professions Code Section 17200 et seq., and even class actions under the Consumer Legal Remedies Act (CLRA), California Civil Code Section 1750. It is also not difficult to imagine competitors making claims of unfair competition based on allegations that a competing cosmetics brand violated California’s animal testing laws, perhaps including false advertising claims for good measure.

Cosmetics manufacturers and their suppliers have a little over a year to ensure that their cosmetics and ingredients made, imported or sold in California will be compliant with the Cruelty Free Cosmetics Act. More challenging still, manufacturers, importers and ingredient suppliers will have to plan for development of new cosmetics and ingredients, with adequate substantiation of their safety that does not depend on animal testing results. Conkle Kremer & Engel attorneys stay up to date on important regulatory developments affecting their clients in the manufacturing and resale industries, and are ready to help clients navigate California’s fast-changing regulatory landscape. If you have questions in this or other consumer product regulatory areas, contact CK&E at counsel@conklelaw.com or 310 998-9100.

1
NOV

Advertising and Labeling, Beauty Industry, California Trade Regulations, Personal Care Products, Unfair Competition

alternative non-animal test methods, Alternative Testing Methods, Animal Testing, Animal Testing Law, California Business and Professions Code 17200, California Civil Code Section 1834.9.5, California Cruelty-Free Cosmetics Act, CLRA, Consumer Legal Remedies Act, Cosmetics, Cosmetics Ingredients, Coty, CoverGirl, Cruelty Free International, Cruelty-Free Cosmetics Act, SB 1249, Unfair Business Practices

What do Goop, Sexual Energy, Jade Eggs and CBD Have in Common?

Posted by: Mark Riedel

Answer: Unproven Health Claims

Goop, a life-style branding company founded by Gwyneth Paltrow, was recently fined $145,000 by a consortium of California Counties for making exaggerated and false advertising claims about its products. The makers and distributors of everything from clothes to perfume, and face cream to condoms, Goop has a well-documented history of over-the-top marketing claims. In the action brought by the County District Attorneys, the government took exception to the claim made by Goop regarding its Jade Egg product. Goop claimed among other things that the egg product, when inserted into the vagina, prevented uterine prolapse and improved sex. In the parlance of the regulators, this was an unsubstantiated or unapproved new drug claim.

In similar fashion, cannabidiol oil or “CBD” products are at the forefront of aggressive (sometimes overly aggressive) health and medical claims. Everyone knows about “medical” marijuana, and CBD is one of several “active” ingredients found in marijuana and hemp plants which is often associated with the beneficial effects of the plant: pain relief, stress or anxiety relief, anti-nausea, and anti-inflammatory. This phenomenon has lead to a budding market in consumer products featuring CBD, accompanied by assertive health claims. The CBD market already covers a wide range of products, including cosmetics (skin creams), food products (edibles), and even CBD laced beer. To add to the confusion, a compound found in marijuana was recently approved by the FDA for treatment of a rare seizure disorder.

And this highlights the problem, especially for marketers of cosmetics. The only FDA-approved medical claim for marijuana compounds is directed to a rare seizure disorder, and this is a tiny market. To make a valid advertising claim that a skin cream product treats, for example, eczema, psoriasis or a rash, the company or brand would need to have FDA approval of the active ingredient for that particular disease or condition at issue. Absent such approval, the marketing claim would likely be regarded as an unapproved new drug and subject to regulatory fines and seizure. Thus, for example, if you want to make a skin-protectant claim for your product, you would need to use one of the FDA approved ingredients for such claims, and limit the claim to the language approved in the FDA monograph for skin protectants. To illustrate the point, witch hazel is one of the FDA approved skin protectant active ingredients. If you use witch hazel as an ingredient in your product, in the correct percentage, it would allow you to make the claim “[r]elieves minor skin irritations due to either i) insect bites, ii) minor cuts, and/or iii) minor scrapes”.

The point of all this is to make sure that your advertising claims are reviewed and approved by experienced legal counsel. This is a common area for regulatory action, as well as private class actions. The FDA routinely polices the internet looking for unsubstantiated and unapproved new drug claims. When the FDA finds a violation, it sends out a warning letter that will look something like this. You do not want to be the first one on your block to own one of these. Consult your CK&E attorney before you put a label on your product, make an advertising claim on your website, press send on an email blast promotion, or even drop a product catalog in the mail. Yes, even old school mailers can get you in trouble.

1
OCT

Advertising and Labeling, Beauty Industry, California Trade Regulations, Class Actions, Fashion, Food, Craft Beer and Nutrition, Personal Care Products, Regulatory Compliance

Cannabidiol, cannabinoids, cannabis, Cannabis Oil, CBD, FDA, Goop, Gwyneth Paltrow, Health Claims, Jade Eggs, Marijuana, Medical Claims, Medical Products, Sexual Energy

New Law Requires Professional Cosmetics Labels to List Ingredients

Posted by: Eric S. Engel

Professional cosmetics sold in California must have full ingredient labeling in the same manner as consumer cosmetics, if the products are manufactured after July 1, 2020. The California legislature unanimously approved AB 2775, introduced by Assembly Member Ash Kalra. The bill was signed into law by Governor Brown on September 14, 2018 and enacted as new Section 110371 to the Health and Safety Code.

There are over 312,000 professional cosmetologists who are licensed to provide nail and hair services, most often in salons. The legislature found that “[i]nformation on the ingredients in professional salon products is essential to ensuring that workers and owners can make safer product choices and take steps to protect themselves and their customers against harmful exposures.”

The new law will establish that professional cosmetics must have a label affixed on the container that satisfies all of the labeling requirements for any other cosmetic pursuant to the federal Food, Drug, and Cosmetic Act (21 U.S.C. Sec. 301, et seq.), and the federal Fair Packaging and Labeling Act (15 U.S.C. Sec. 1451, et seq.). In other words, professional cosmetics must have the same ingredient labeling as consumer cosmetics.

The law already defines the term “cosmetic” as “any article, or its components, intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to, the human body, or any part of the human body, for cleansing, beautifying, promoting attractiveness, or altering the appearance.” (Health and Safety Code Section 109900) The newly-enacted law introduces a new definition of “professional cosmetic,” meaning a cosmetic “that is intended or marketed to be used only by a professional on account of a specific ingredient, increased concentration of an ingredient, or other quality that requires safe handling, or is otherwise used by a professional.” In turn, “professional” is defined for this purpose as “a person that has been granted a license by the State Board of Barbering and Cosmetology to practice in the field of cosmetology, nail care, barbering, or esthetics.”

There is arguably some ambiguity in that the new statute could be read to define a “professional cosmetic” in a circular manner as including a cosmetic that “is … used by a professional.” Such an ambiguity is not likely a concern in this particular Act. This is because the effect of this new law is just to require the same type of ingredient labeling for both consumer and professional cosmetics, so it should not matter whether a licensed professional uses a resalable consumer or professional cosmetic for purposes of compliance with this law. However, if in the future the same definition of “professional” is incorporated into other enactments (much like “the definition of cosmetics” was incorporated here from a different statute), the circular definition may become more problematic.

The new law was enacted with widespread industry support, including the Personal Care Products Council, the Professional Beauty Association, California Chamber of Commerce, and Unilever. Many manufacturers have already listed product ingredients on their professional cosmetic lines in a manner consistent with that required for retail cosmetics, and so may already be in compliance. But manufacturers should review their professional cosmetic product labeling well ahead of the July 1, 2020 effective date in order to determine whether they comply. Further, manufacturers should be aware that there is no specific “professional cosmetic” exception to other warning label requirements, such as Proposition 65, which requires warnings if use of a product on a consumer in California would result in significant exposure to identified chemicals that are known to cause cancer, birth defects or other reproductive harm.

Manufacturers are well-advised to seek qualified counsel to review their circumstances before committing to potentially costly label changes, to be sure they comply with all legal requirements. Conkle, Kremer & Engel attorneys stay up to date on important regulatory developments affecting their clients in the professional salon products industry, and are ready to help clients apply navigate the changing regulatory landscape in California and elsewhere.

19
SEP

Advertising and Labeling, Beauty Industry, California Trade Regulations, Manufacturing, Personal Care Products, Proposition 65

AB 2775, and Cosmetic Act, Ash Kalra, Consumer Cosmetics, Cosmetics, Cosmetologists, Cosmetology, Drug, Esthetics, Fair Packaging and Labeling Act, Food, Hair Salons, Health and Safety Code Section 110371, Ingredient Labeling, Ingredient Labels, Ingredients, Nail Salons, PBA, PCPC, Personal Care Products Council, Professional Beauty Association, Professional Cosmetics, Professional Salons, Prop 65, Prop 65 Warnings, Proposition 65, Salons

CBD is Turning Up Everywhere – But is it Allowed?

Posted by: Aleen Tomassian

One of the hottest trends in many industries is the addition of cannabis-derived extracts to consumer product formulas. This is likely driven by the widespread popularity of local and state attempts to legalize medical or recreational marijuana use. The personal care product industry is no exception to the trend, as any number of new product lines from moisturizers to mascara are being released with cannabis extracts in their formulations. Cannabidiol (CBD) is turning up in all types of consumer food and drink products, from honey to craft beers.

The cannabis plant contains over 113 known cannabinoids, or naturally-occurring compounds that interact with receptors in the human body, including cannabidiol (CBD) and THC. Since psychoactive effects are often attributed to the THC ingredient, it is generally avoided in consumer products, but CBD is considered to have no psychoactive properties and is becoming a popular ingredient, as is its cousin, hemp seed oil. Some believe CBD can have health benefits – but more about that later. In the current confusing state and federal legal environment concerning marijuana, many consumer product companies are wondering, is it legal to include CBD in my products? The short answer is no. The long answer is “it’s complicated.” And the most important answer is that the environment is changing fast, so in the near future the question may become moot.

To understand the current complications, a little background on cannabis extracts is essential. First, hemp and marijuana are both varieties of the cannabis sativa plant. Various cannabis extracts can be sourced from different parts of the cannabis plant in a variety of ways. The most common cannabis extracts used in personal care and many other products are hemp seed oil and CBD oil. Hemp seed oil is produced by cold-pressing the seed of a hemp plant, while CBD oil is generally produced from the leaves and flowering tops of either a marijuana plant or a high-CBD hemp plant. Marijuana has high amounts of THC, the psychoactive ingredient that produces the “high” of marijuana. Hemp, on the other hand, typically contains only trace amounts of THC, but can be bred to have high amounts of CBD. While hemp seed oil differs from CBD oil, the legality of the two are intertwined. In short, hemp seed oil imported from abroad is legal, while hemp seed oil sourced from hemp grown in the United States may be legal in certain circumstances. CBD oil, on the other hand, is at present illegal under federal law under all circumstances.

Sterilized seeds and oil and cake made from the seeds of the cannabis plant (we’ll refer to these as “Hemp Oil” for the sake of simplicity) do not fall under the purview of the Controlled Substances Act (the CSA), which regulates federal U.S. drug policy. Hemp Oil is not deemed to be a controlled substance, so the production, distribution and possession of Hemp Oil is legal. However, there are heavy regulations on the cultivation of “industrial hemp” (cannabis plants with THC concentration <0.3% by dry weight) from which Hemp Oil is derived. In simplified terms, Hemp Oil must be either imported into the U.S. or derived from industrial hemp legally grown pursuant to a 2014 Farm Bill. Pursuant to the 2014 Farm Bill, industrial hemp may only be grown for commercial purposes under specific pilot programs that have been adopted in particular states.

Unlike Hemp Oil, CBD is most easily derived from the leaves and flowering tops of cannabis plants. CBD sourced from the leaves and flowering tops of the marijuana plant is illegal under the CSA, because the leaves and flowers of cannabis plants are not exempt from the definition of the CSA. But CBD can also be derived from industrial hemp, and since the passage of the 2014 Farm Bill it was commonly believed that CBD derived from legally grown industrial hemp would be legal. But it’s not that simple. In 2017 the DEA implemented a final rule specifically targeting cannabinoid extracts, which includes CBD extract, regardless of its source. The final rule defined a new category of “marihuana extract” under the CSA that specifically rendered cannabinoid extracts a controlled substance illegal in general distribution and use. The DEA reiterated that any such cannabinoid extracts substance “will continue to be treated as Schedule I.”

The legality of the DEA’s new “marihuana extract” definition is questionable, but at present the new category of “marihuana extract” stands under the CSA, making CBD illegal under federal law. Hemp Oil is still legal and available for use in personal care products if imported into the US or grown pursuant to the state-licensed commercial hemp grower pilot programs. In May 2018, the DEA issued an internal directive acknowledging that products and materials made from the cannabis plant that fall outside of the CSA’s definition of marijuana (such as “sterilized seeds incapable of germination, and oil or cake made from the seeds”) can be “sold and otherwise distributed throughout the United States without restriction under the CSA or its implementing regulations.” But this directive does not make CBD legal in the DEA’s view.

Despite the dubious legal status of CBD oil and to a lesser extent Hemp Oil, many companies are choosing to forge ahead and add cannabis extracts to their products. Many such risk-takers believe that DEA enforcement against CBD-containing products is virtually nonexistent, and demand for consumer products containing CBD is high, so the potential risk is outweighed by perceived market benefits.

That conclusion is reinforced because there is a widespread perception that soon all these concerns could go up in smoke. Congress has begun action to remove industrial hemp from the definition of marijuana under the CSA. Such a move would also remove any extracts derived from hemp from the new definition of “marihuana extract.” Reports indicate that Congress may pass the bill before the end of 2018, effectively making CBD oil derived from hemp legal across the United States. If that comes to pass, the product manufacturers who decided to jump the market and add CBD to their products even when it was legally dubious to do so may feel vindicated.

But CBD is not a magic elixir that relieves brand owners from overreaching in their labeling and advertising. In a future blog post, we’ll address the hazards of claiming health benefits from use of non-medical products, including those containing CBD.

Conkle, Kremer & Engel attorneys stay up to date on important regulatory developments affecting their clients in the manufacturing and resale industries, and are ready to help clients navigate the fast-changing regulatory federal and state landscape. If you have questions in this or other consumer product regulatory areas, contact CK&E at counsel@conklelaw.com or 310 998-9100.

10
SEP

Advertising and Labeling, Alcoholic Beverages, Beauty Industry, California Trade Regulations, Food, Craft Beer and Nutrition, Manufacturing, Personal Care Products, Regulatory Compliance

2014 Farm Bill, canabis, Canabis Oil, Cannabidiol, cannabinoids, cannabis, Cannabis Oil, CBD, CBD Honey, Controlled Substances Act, Craft Beer, Craft Beer Brewers, Craft Brewers, DEA, Drug Enforcement Administration, FDA, Food and Drug Administration, Hemp, Hemp Oil, Hemp Seed Oil, Honey, Industrial Hemp, Marihuana Extract, Marijuana, Marijuana Extract, THC

Conkle Firm Attorneys at Craft Beer Summit

Posted by: Conklelaw

Conkle, Kremer & Engel attorneys Evan Pitchford and Zachary Page will attend the California Craft Beer Summit September 6-8, 2018 in Sacramento, California. The Summit is presented by the California Craft Brewers Association, the preeminent craft beer trade group and legislative advocate in California, which is in turn one of the most progressive states in terms of its policies towards the craft beer industry. The Summit is one of the largest West Coast craft beer-oriented industry events, with thousands of industry professionals and exhibitors in attendance each year.

Mr. Pitchford and Mr. Page will attend to meet with industry professionals and keep current on the latest industry trends, including legal developments, craft brewing distribution and business issues, and evolving beer styles. For example, this year’s Summit seminars include the cutting-edge topic of brewing, selling, and advertising products with cannabis-derived ingredients such as hemp and cannabidiol (CBD) oil, creative uses of ABC licenses, updates on the Tax and Trade Bureau’s guidelines and requirements, and discussions on the changing and more competitive retail environment in California.

Conkle, Kremer & Engel brings its decades of experience to bear on a number of beer industry-specific issues, such as brand protection and intellectual property, distribution and vendor relations, state and federal regulatory issues, advertising and labeling, employment law, and litigation and alternative dispute resolution in state and federal courts. If you’re an industry professional or craft beer-related business who will be at the California Craft Beer Summit and would like to connect with Mr. Pitchford and Mr. Page before, during or after the event, please contact them at e.pitchford@conklelaw.com and z.page@conklelaw.com. They would be happy to arrange free initial discussions about particular issues you may be facing.

29
AUG

Advertising and Labeling, Alcoholic Beverages, Brand Protection, California Trade Regulations, Food, Craft Beer and Nutrition

Brewers, Cannabidiol, cannabinoids, cannabis, Cannabis Oil, Craft Beer, Craft Beer Brewers, Craft Beer Summit, Craft Brewers Association, Hemp, Marijuana

Cosmoprof North America Features Challenging CBD, Natural and Organic Product Lines

Posted by: Evan Pitchford

On July 29 and 30, 2018, Conkle, Kremer & Engel continued its annual firm attendance at Cosmoprof North America in Las Vegas, visiting with longtime and new clients and observing new brands and trends in the personal care industry. This year’s edition of Cosmoprof had over 36,000 attendees with a record-breaking 1,278 exhibitors from 45 countries. CK&E attorneys attend to connect with clients and others in the cosmetics, personal care, packaging, labeling and professional beauty markets, to help clients secure distribution agreements, and to learn about the newest industry innovations and issues.

This year, trends included substantial expansion of the mens’ care and beard care sector, along with CBD-infused cosmetics and hair care products and natural and organic hair regrowth formulas. Organic products sold in California must meet strict requirements, and Products with “natural” claims can present special challenges and risks, as CK&E has addressed in previous blog posts, such as “What are Natural Products Anyway?” A new twist has been recent growth (no pun) in “hair regrowth” products labeled as “natural” or “organic” . Those classes of products face special issues in addition to whether they can fairly be called “natural” or “organic,” in that hair regrowth claims can at times run afoul of federal prohibitions on products that make drug-like claims without FDA approval, as well as federal and state labeling and advertising regulations. Finally, a new class of beauty and hair care products are based on Cannabidiol (CBD) content, taking advantage of increased acceptance of cannabis-based products. Yet CBD products continue to pose their own special issues, which will be the subject of an upcoming www.conklelaw.com blog post. CK&E is well-versed in counseling clients on all such issues, from brand protection, vendor and distribution issues to the latest CBD, natural and organic product concerns.

Lastly, foremost on the minds of many manufacturers and distributors who sell in California were the new requirements for Proposition 65, the well-known California law requiring “Prop 65” warnings for products which contain chemicals known to cause cancer or reproductive harm. New warning label requirements go into effect on August 30, 2018, which CK&E has already summarized on its blog. CK&E is actively advising manufacturers about the most efficient and effective ways to address the changes and avoid the risks of inadvertent violations.

CK&E’s attorneys continue to pride themselves on keeping abreast of developments in the personal care market, along with assisting clients of all sizes with growth and protection of their brands and interests. CK&E is an active member of the Professional Beauty Association, the Personal Care Products Council, and other important industry trade organizations.

7
AUG

Advertising and Labeling, Beauty Industry, Brand Protection, California Organic Products Act, California Trade Regulations, Copyrights, Manufacturing, Personal Care Products, Proposition 65, Trademarks

Brand Protection, California Organic Products Act, canabis, Canabis Oil, Cannabidiol, cannabinoids, cannabis, Cannabis Oil, CBD, COPA, Cosmoprof, Cosmoprof 2018, cosmoprof las vegas, Cosmoprof NA, cosmoprof north america, Distribution, Distributors, Hair Regrowth, Hemp, Natural, Organic, PBA, PCPC, Prop 65, Prop 65 Warnings, Proposition 65, Proposition 65 Warnings

It’s Time: New Prop 65 Warnings are Required August 30, 2018

Posted by: Aleen Tomassian

In November 2017, we advised readers of Conkle, Kremer & Engel’s blog that products sold in California would become subject to new Proposition 65 warning requirements beginning August 30, 2018. The new “Clear and Reasonable Warning Regulations” from California Office of Health Hazard Assessment (OEHHA) significantly changed warning requirements for affected products that are manufactured on or after August 30, 2018. Among other changes, the new regulations affect the safe-harbor warning requirements that govern the language, text, and format of such warnings, and also impose downstream warning mandates through retail, online and catalog sales channels. Generally, some of the major changes that companies selling consumer products should be aware of include:

The “warning symbol” : A graphic “warning symbol” is now required on consumer products, other than food products. The “warning symbol” must be printed in a size no smaller than the height of the bolded word “WARNING,” and should be in black and yellow, but can be in black and white if the sign, label, or shelf tag for the product is not printed using the color yellow. The entire warning must be in a type size no smaller than the largest type size used for other “consumer information” on the product, and in no case should be smaller than 6-point type.
Listing of a specific chemical: Warnings must now specifically identify at least one listed ingredient chemical for each toxicological endpoint (cancer and reproductive toxicology) and include a link to OEHHA’s new website P65Warnings.ca.gov. Certain special categories of products, such as food and alcoholic beverages, have a specialized URL that must be used instead.
New warning language: Warning language must now warn of an exposure to a chemical or chemicals from the product, rather than just warn that the product contains the chemical or chemical. For example, “ WARNING: This product can expose you to diethanolamine, which is known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov.”
Internet and catalog requirements: For internet sales, warnings must be provided with a clearly marked hyperlink on the product display page, or otherwise prominently displayed to the purchaser before completion of the transaction. It will not be sufficient if the product sold on the internet bears the required label, but the internet point of purchase listing does not. For catalog sales, a warning must be provided in a manner that clearly associates it with the item being purchased.
Short-form warnings: The regulations allow the use of certain abbreviated “short-form” warnings, which may omit the identity of any specific chemical, only if the warning is printed on the immediate container, box or wrapper of the consumer product or is affixed to the product. For example, “ WARNING: Cancer – www.P65Warnings.ca.gov.” If a short-form warning is used on the product, the same short-form warning may be used for internet and catalog sales.

The regulations seek to minimize the burden on retail sellers of consumer products, but there are some obligations affecting resellers. Manufacturers, producers, distributors, and other upstream businesses comply with warning requirements if they affix a clear and reasonable warning to the product, or provide written notice and warning materials to an authorized agent of a retailer, among other requirements. Retailers who receive products with a Proposition 65 warning on the label, or who receive proper notice that a warning is required, are responsible for placement and maintenance of internet warnings for those products before selling to consumers in California. Retailers should only be liable for Proposition 65 violations under limited circumstances, such as if they cover, obscure, or alter a product’s warning label, or if they receive notice and warning materials but fail to display a warning, including catalog and internet warnings preceding consumer sales into California.

The particular requirements for each specific product can vary, so manufacturers and resellers are well-advised to seek qualified counsel to review their circumstances before committing to potentially costly label and website changes that may not comply with the new requirements. Conkle, Kremer & Engel attorneys stay up to date on important regulatory developments affecting their clients in the manufacturing and resale industries, and are ready to help clients navigate the changing regulatory landscape in California and elsewhere.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

October 2018 Update

H. Kim Sim of CK&E was interviewed and quoted extensively in ChemicalWatch about the difficulties manufacturers face in implementing the “very confusing and very complex” requirements of the new warning label requirements of Prop 65. For example, as Kim said, “The requirement that manufacturers name at least one substance for which they are providing warning has proven particularly challenging. Determining which one to include ‘can be tricky for companies to decide’, she said. ‘Is one more scary to the public than another?'”

12
JUL

Advertising and Labeling, Alcoholic Beverages, Beauty Industry, California Trade Regulations, Fashion, Food, Craft Beer and Nutrition, Green Chemistry Initiative, Manufacturing, Personal Care Products, Proposition 65, Regulatory Compliance, Sales, Technology

Cancer Toxicology, Candidate Chemicals, chemicals, Clear and Reasonable Warning Regulations, Clear and Reasonable Warnings, Exposure, Notice of Violation, NOV, OEHHA, Office of Environmental Health Hazard Assessment, P65 Warnings, P65Warnings, Prop 65, Prop 65 Warnings, Proposition 65, Proposition 65 Warnings, Reproductive Toxicology, Toxic Chemicals

California Consumer Privacy Act of 2018 – A U.S. Version of EU’s GDPR

Posted by: Conklelaw

The California Consumer Privacy Act of 2018, regarded as the most comprehensive privacy law in the United States, was unanimously passed by the California legislature and signed into law by governor Jerry Brown on June 29, 2018. The bill (AB 375) was fast-tracked through the State Senate and Assembly in a rush to defeat an even stricter privacy ballot initiative, which was introduced by Californians for Consumer Privacy. After weeks of intense negotiations with technology companies, Californians for Consumer Privacy agreed to withdraw the initiative if AB 375 was signed into law.

The new law, which takes effect January 1, 2020, is a reactive measure to recent privacy and data breaches, including the Cambridge Analytica scandal, and governs the use of California consumers’ data by larger companies. Businesses are required to disclose the categories of information to be collected prior to collection, as well as the identity of third-parties that are allow to access that information. Consumers also have the right to request the data that has been collected on them and may also request that the data be deleted. While consumers over 16 years old may opt out of having their data sold to third-parties without being penalized, businesses are prohibited from selling data collected from consumers under 16 years old unless these underage consumers affirmatively opt-in. The bill also gives California consumers the right to sue for up to $750 in the event of a data breach involving non-encrypted personal information due to the failure to implement and maintain reasonable security procedures and practices.

While this California law is the strictest in the nation, it is less restrictive than the EU GDPR. For example, the GDPR requires consumers opt into, or give consent, by “clear affirmative action,” prior to the collection of personal data, whereas the California law only requires disclosure prior to the collection of personal data and allows them to opt-out of the sale of personal data. Most importantly, the GDPR requires any business that offers goods or services to consumers in the EU and collects any personal data from those EU residents to comply with the GDPR, while the California law only applies to companies that do business in California and satisfy one of the following criteria: (1) have an annual gross revenue exceeding $25 million; (2) in connection with a commercial purpose, annually buy, receive, sell, or share the personal information of 50,000 or more consumers; or (3) derive 50% or more of its annual revenues from selling consumers’ personal information.

The California Consumer Privacy Act may not remain in final form as passed. Tech companies have already expressed their desire to lobby legislators to change certain provisions of the law which they believe will result in unintended consequences. Lawmakers are expected to make amendments to the bill over the course of the next 18 months.

Conkle Kremer & Engel will continue to monitor the status of the California Consumer Privacy Act and will report on changes to the final version of this law, if any. CK&E has many years of experience advising clients about regulatory compliance issues they face, and helping them prepare for foreseeable changes in the law.

30
JUN

California Trade Regulations, Privacy, Technology

California Consumer Privacy Act of 2018, EU GDPR, GDPR

Page 3 of 7 1 234 5...»