Cannabis Companies Sued Over Marketing Claims: What Operators Need to Know About Insurance Coverage

Cannabis Companies Are Being Sued Over Their Marketing. Here's Why Every Cannabis Operator Should Pay Attention.

For years, cannabis operators have worried about contamination claims, product recalls, theft, crop losses, and regulatory compliance. Now a new federal class action lawsuit is highlighting a different type of risk—one that could have significant insurance implications for cannabis businesses across the country.

The lawsuit alleges that several major cannabis companies marketed products as helping with conditions such as anxiety, depression, PTSD, sleep disorders, and pain while failing to adequately disclose potential health risks. The plaintiffs are pursuing claims that include:

• Federal RICO allegations

• Consumer protection claims

• Breach of warranty claims

• Negligent misrepresentation allegations

Whether those allegations ultimately succeed will be determined by the courts. But for cannabis operators, cultivators, processors, manufacturers, and dispensaries, the lawsuit raises an important question:

Would your insurance policy respond if your business faced similar allegations?

Why This Lawsuit Is Different Than Traditional Product Liability Claims

When most cannabis operators think about product liability claims, they think about issues such as:

• Mold contamination

• Pesticide contamination

• Mislabeling

• Defective products

• Product recalls

This lawsuit takes a different approach.

Instead of focusing on what was inside the product, plaintiffs are challenging how products were marketed and whether consumers were adequately informed about potential risks.

That distinction matters because many insurance policies contain exclusions that could significantly limit coverage for these types of allegations.

Coverage Concern #1: Health Hazard Exclusions

One of the most common exclusions found in cannabis insurance policies is the health hazard exclusion.

Depending on policy wording, these exclusions may limit or eliminate coverage for claims involving:

• Mental health conditions

• Addiction-related allegations

• Psychological injuries

• Neurological conditions

• Long-term health effects

• Cannabinoid Hyperemesis Syndrome (CHS)

Many operators assume that product liability coverage automatically applies to any bodily injury allegation involving their products.

Unfortunately, that isn't always the case.

The actual policy language often determines whether coverage exists.

Coverage Concern #2: Class Action Exclusions

Many cannabis insurance programs contain specific exclusions for class action lawsuits.

This can create a major coverage issue.

A policy that may respond to an individual customer claim could potentially deny coverage when hundreds or thousands of consumers are included in a single lawsuit.

Operators should carefully review their insurance program for class action exclusions within:

• Product liability policies

• Commercial general liability policies

• Specialty cannabis programs

• Directors and Officers (D&O) coverage

Many businesses don't discover these exclusions until after a claim is filed.

Coverage Concern #3: RICO Allegations and Insurance Coverage

The lawsuit also includes allegations under the Racketeer Influenced and Corrupt Organizations Act (RICO).

RICO claims often create additional insurance challenges because many policies contain exclusions related to:

• Fraud

• Intentional misconduct

• Criminal acts

• Knowing violations of law

• Racketeering allegations

Even if allegations are eventually proven false, insurers may still scrutinize coverage when these claims are included in a lawsuit.

The result can be costly coverage disputes before the underlying case is ever resolved.

Coverage Concern #4: Treble Damages and Statutory Penalties

One reason plaintiffs often pursue RICO claims is the possibility of recovering treble damages.

Treble damages allow courts to award three times the actual damages under certain circumstances.

Many insurance policies specifically exclude:

• Treble damages

• Punitive damages

• Exemplary damages

• Statutory penalties

• Certain consumer protection awards

Even if portions of a lawsuit are covered, these enhanced damages often are not.

Coverage Concern #5: Marketing Claims Can Create Unexpected Exposure

Many operators assume risk only exists when companies make direct medical claims.

In reality, plaintiffs' attorneys often look much broader.

Consider common marketing language used throughout the cannabis industry:

• Helps you relax

• Reduces stress

• Better sleep

• Enhances focus

• Supports recovery

• Promotes wellness

Even seemingly harmless statements may receive increased scrutiny if consumers allege they relied on those representations when purchasing products.

The issue isn't always whether the statement was intentionally misleading.

The issue is whether a plaintiff can argue that consumers relied on it.

What Cannabis Businesses Should Do Right Now

The best time to identify coverage gaps is before a lawsuit occurs.

Here are several proactive steps operators should consider.

Review Marketing Materials - Conduct a thorough review of:

• Websites

• Product packaging

• Social media content

• Email campaigns

• Sales materials

• Advertising campaigns

Ask whether every statement can be supported and documented.

Review Product Warnings

Many cannabis businesses focus heavily on regulatory compliance.

However, litigation often centers around whether consumers were adequately informed about potential risks.

Work with qualified legal counsel to periodically review warnings and disclosures.

Implement Marketing Approval Procedures

Create a formal review process for:

• Advertising claims

• Product descriptions

• Health-related statements

• Social media content

• Packaging language

Documenting this process may become important evidence if litigation occurs.

Conduct an Insurance Coverage Audit

Ask your broker to specifically review:

• Health hazard exclusions

• Class action exclusions

• Product liability exclusions

• Consumer fraud exclusions

• Advertising injury coverage

• Directors and Officers coverage

• RICO-related exclusions

• Punitive damages exclusions

Many cannabis businesses focus only on policy limits and overlook critical exclusions.

Reevaluate Liability Limits

As cannabis litigation continues to evolve, operators should evaluate whether their current liability limits remain adequate.

A large consumer-driven claim can quickly exceed limits that once appeared sufficient.

The Bigger Takeaway for Cannabis Operators

Whether this lawsuit ultimately succeeds or fails, it highlights an important trend.

Future cannabis litigation may focus less on contamination and product defects and more on:

• Marketing practices

• Consumer disclosures

• Health-related representations

• Product warnings

• Alleged consumer deception

For cannabis operators, that means risk management must extend beyond cultivation, manufacturing, and compliance.

It should also include marketing oversight, documentation procedures, and a thorough review of insurance coverage.

The operators that take those steps today will be in a much stronger position if similar allegations emerge tomorrow.

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Frequently Asked Questions

Does cannabis product liability insurance cover class action lawsuits?

Not always. Many cannabis insurance policies contain class action exclusions that may limit or eliminate coverage.

What is a health hazard exclusion?

A health hazard exclusion is policy language that may exclude coverage for certain bodily injury, psychological injury, addiction-related, or long-term health effect allegations.

Does insurance cover RICO claims?

Coverage depends on policy wording. Many policies contain exclusions related to criminal acts, fraud, intentional misconduct, or racketeering allegations.

Can marketing claims create insurance exposure?

Yes. Allegations involving misleading advertising, product representations, or failure-to-warn claims can create significant litigation exposure.

How often should cannabis businesses review their insurance policies?

At minimum, annually. Businesses launching new products, expanding into new states, or changing marketing strategies should consider more frequent reviews.

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Sources:

‘Big Tobacco’ Moment for Cannabis: What Insurers Need to Know About Murray v. Cresco

Viewpoint: ‘Big Tobacco’ Moment for Cannabis – What to Know About Murray v. Cresco

Cannabis companies hid health issues from consumers: Federal lawsuit

18 U.S. Code § 1961 - Definitions | U.S. Code | US Law | LII / Legal Information Institute

Health Products Compliance Guidance | Federal Trade Commission

Warning Letters for Cannabis-Derived Products | FDA

FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD) | FDA