Cannabusiness Advisory

Cannabis Businesses are Subject to the Same Laws that Other Businesses Are: So Don’t Let the TCPA Bite You

May 1, 2019


Whether a cannabis firm is in the recreational or the medicinal space it seems as though there is an excess of rules and demands whichever way you turn. The new California regulations read like those for a proper pharmaceutical firm, while we know that bank financing or even financing receivables can demand extraordinary documentation. And there’s no need to dwell upon the continued uncertain status of cannabis and its derivatives per the Cole Memo and the fact that cannabis remains largely a cash business with its attendant risks.

So with all of that to consider, it would not be surprising for a consumer facing cannabis firm not to think much about sending out a few text messages. Well, perhaps more than a few. In early April it was reported that Eaze Solutions, Inc. agreed to pay $1.75 million in settlement of a class action claim that it had bombarded consumers with unsolicited, autodialed text messages. The company’s mobile app facilitates the personal delivery of recreational and medical marijuana throughout California, earning it the moniker (at least by plaintiff’s counsel) of the “Uber of weed.” (No report from Uber as to how they feel about this compliment.) The successful plaintiffs contained approximately 51,000 members, suggesting that Eaze had done quite a bit of marketing.

The lesson for everyone – whether or not in the cannabis sector – is that it will cost you a fraction of $1.75 million and the cost of your defense in order to get marketing communications correct the first time.

What Is the TCPA?

The Telephone Consumer Protection Act (TCPA) and its implementing regulations specifically prohibit the transmission of marketing text messages to cellular phones via an “automatic telephone dialing system” (ATDS), absent the “prior express written consent” of the called party. To prove a violation of the TPCA, the plaintiff has the burden of demonstrating that the defendant’s calls or text messages were sent via an ATDS, which is defined in the statute as any dialing equipment that “ha[s] the capacity . . . to store or produce telephone numbers to be called, using a random or sequential number generator.”

In the particular context of texting to mobile numbers, the TCPA prohibits using an ATDS to call a cell phone, pager or any other number for which the called party is charged without the consumer’s prior express consent. While today’s online world permits the following to be done electronically, nonetheless, the text recipient’s consent:

1) Must be in writing;
2) Must be signed by the consumer (an electronic signature is sufficient pursuant to the E-SIGN Act);
3) Must specifically authorize the caller to place telemarketing calls to the consumer;
4) Must clearly authorize the caller to use an ATDS and/or prerecorded message;
5) Must include the telephone number to be called; and
6) Must disclose that consumers are not required to sign the agreement (directly or indirectly) or agree to the agreement as a condition of purchasing any property, goods or services.

In the event of a violation of the TCPA, a consumer may (1) sue for up to $500 for each violation or recover actual monetary loss, whichever is greater, (2) seek an injunction, or (3) both. In the event of a willful violation of the TCPA, a subscriber may sue for up to three time the damages, i.e. $1,500, for each violation.

One of the eccentricities of the TCPA is that even though a federal statute, suits brought by consumers against violators are frequently filed in state courts. The TCPA is unusual in that the language creating a private right of action led to conflicting views on whether the federal courts had appropriate jurisdiction. The TCPA provides in relevant part: “A person or entity may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate court of that State. …”

No wonder reports indicate that TCPA class action litigation continues to be one of the hottest areas for plaintiffs’ counsel.

The TCPA really is one of those rules that is more easily and more cost-effectively adopted rather than avoided. Whether a firm is engaged in a telemarketing campaign or a texting campaign, the effort to obtain proper legal advice and engage a compliant service provider will yield multiple benefits, beginning with a more valid marketing list and significant reduction of litigation risk.

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