Cannabis companies nationwide are facing yet another statutory obstacle that can have serious (and potential ruinous) consequences for the emerging industry if not appropriately addressed—the Telephone Consumer Protection Act (“TCPA”). There is a recent uptick in class-action lawsuits filed against cannabis companies across the country premised on alleged violations of the TCPA including lawsuits in Michigan and California. These complaints allege cannabis companies sent unsolicited marketing text messages or placed automated phone calls to individuals without their consent. Cannabis dispensaries and other cannabis-related businesses should add TCPA compliance protocols to their checklist of regulatory requirements to be satisfied in this quickly emerging industry.

The TCPA

Enacted in 1991, the TCPA heavily regulates the ability to send phone, text, or facsimile messages through automatic telephone dialing systems. Non-compliance with the statute can be costly, as companies found to have violated the TCPA can be liable for $500 per call or text sent in violation of the Act, and up to $1,500 for willful or knowing violations. Damages are also not capped under the TCPA, so even a small number of texts or calls sent to a large number of recipients can lead to hefty damage awards. The ability to recover significant damages results in most TCPA claims being brought as class-actions. As a result, it is imperative that cannabis businesses that communicate with customers via text or by phone understand the rules governing the TCPA to avoid or at least minimize their liability exposure.

Why the Cannabis Industry?

The legalization of cannabis around the country has resulted in the proliferation of the cannabis industry almost overnight. The nature of how many cannabis businesses operate makes the developing industry an easy target for TCPA lawsuits. Many cannabis businesses are limited by state law or municipal ordinances in the advertising methods they may employ, and are prevented from using some social media channels. Thus, these companies must rely on automated text messaging to reach their customer base for marketing purposes—which can lead to potential violations of the TCPA. Cannabis companies often offer discreet delivery or curbside pickup to their customers in which communication by text or by phone is vital. The ongoing COVID-19 pandemic contributes to the increased need for remote communications. Causing even more problems are new cannabis startup companies seeking to quickly enter the market. Due to the other regulatory and financial obstacles they must already overcome to launch the business, compliance with the TCPA can often take a backseat to what these newer companies view as more pressing matters to address.

Key Considerations and What Cannabis Companies Can Do to Protect Themselves

Cannabis companies need to be proactive and ensure they are minimizing the risks of potential TCPA lawsuits against them. This is especially true given that most commercial general liability or other business type insurance policies explicitly exclude TCPA claims from coverage, leaving the business itself to foot the bill for defense costs and potentially large damage awards.

While many (if not most) cannabis companies utilize third-party companies to handle communications with their customers, they are not shielded from direct liability under the TCPA for the actions of a third-party they use. As a result, cannabis companies should thoroughly vet any third-parties they utilize to ensure they are in constant compliance with the TCPA. Cannabis companies should also revisit the specific provisions used in agreements with third-parties as broad indemnification clauses could leave a business on the hook for some or all of the costs of the third-party company’s defense if independently sued.

Now is also the time for newer businesses, and even more established cannabis businesses for that matter, to consider having their communication protocols reviewed to ensure TCPA compliance. Methods of securing, documenting and preserving evidence of consent as well as protocols for processing revocations of consent are central to TCPA compliance.

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Photo of Rosa M. Tumialán Rosa M. Tumialán

Rosa M. Tumialán, a Member in the Firm’s Chicago office, is a litigator who complements her practice with extensive judicial experience gained from clerkships in both the Illinois Appellate Court and the Chancery Division of the Circuit Court of Cook County. Ms. Tumialán…

Rosa M. Tumialán, a Member in the Firm’s Chicago office, is a litigator who complements her practice with extensive judicial experience gained from clerkships in both the Illinois Appellate Court and the Chancery Division of the Circuit Court of Cook County. Ms. Tumialán is a member of the Firm’s Diversity Committee and Financial Review Committee.

Ms. Tumialán focuses her practice on complex commercial disputes, including class action defense and insurance coverage litigation, in both state and federal courts. Ms. Tumialán’s experience in representing clients in what is often a “bet the company” TCPA litigation has made her a lead defense attorney in this area as well as in litigation arising under other consumer privacy statutes such as the Illinois Biometric Privacy Act (“BIPA”). Ms. Tumialán is lauded for her ability to develop and employ unique and aggressive strategies for her clients in these evolving areas. Ms. Tumialán is routinely sought out by companies seeking TCPA and BIPA compliance analysis or those who face TCPA and BIPA liability. She also advises insurers on TCPA exposure and presently serves as national coordinating counsel for insurance clients who rely on her to develop and implement strategies nationwide, which includes daily monitoring of case law developments. She is often asked to opine on BIPA matters and represent clients named in BIPA class actions. Ms. Tumialán has also spoken on this statute which is becoming the latest darling of the plaintiff class action bar.

Photo of Peter M. Grace Peter M. Grace

Peter M. Grace is a litigation associate in Dykema’s Business Litigation group. Mr. Grace graduated cum laude from Wayne State University Law School in May 2019. While in law school, he served as President of the Student Bar Association, Managing Editor of The

Peter M. Grace is a litigation associate in Dykema’s Business Litigation group. Mr. Grace graduated cum laude from Wayne State University Law School in May 2019. While in law school, he served as President of the Student Bar Association, Managing Editor of The Wayne Law Review, and was a member of Wayne Law’s moot court program. During his time at Wayne Law, Mr. Grace interned with the United States District Court for the Eastern District of Michigan and the United States Attorney’s Office for the Eastern District of Michigan.