Cannabis-Related Recalls Require Advance Preparation to Facilitate Rapid Response

The specter of product liability and product recalls looms large over the U.S. cannabis industry. Just last week, as Marijuana Business Daily reported, “Arizona marijuana retailers … issued a voluntary recall for eight products following the discovery … by state regulators that some of the merchandise may have been contaminated with salmonella or a type of mold called aspergillus.”

Of course, a product recall can be an extremely serious and challenging matter for any business. Public health and safety may be at risk. Regardless, the recall may be costly and/or damaging to the business’ reputation. So, when a recall becomes necessary, time becomes of the essence.

A business should not wait until a recall is required to start preparing a plan to implement a recall and to triage the attendant legal and commercial issues that will no doubt arise. Instead – before the dust even settles on the recent recall in the Grand Canyon State – cannabis-related businesses across the United States should already be preparing for the next set of recalls – recalls that will unfortunately and inevitably occur.

To be sure, that preparation should take into account the specific facts and circumstances of a particular business. Among other considerations, that planning should account for the nature of the business (e.g., retail, cultivation) as well as the geography(ies) in which the business operates. Legal requirements may vary from jurisdiction to jurisdiction.

That said, there are any number of steps any cannabis-related business can and should take ahead of time so that the business is best prepared to act swiftly if and when a product recall becomes necessary. For example:

• A business can and should fully familiarize itself with any applicable state and/or local laws, regulations, and/or rules about handling product-related complaints and/or investigating and implementing product recalls. For example, in Pennsylvania, after a dispensary notifies a grower/processor about a “complaint”/”adverse event,” a cannabis “grower/processor” is legally required to “investigate a complaint to determine if a voluntary or mandatory recall of seeds, immature medical marijuana plants, medical marijuana plants, medical marijuana or medical marijuana products is necessary or if any further action is required.”

• Consistent with applicable state and/or local laws, regulations, and and/or rules, a business also can and should develop a “recall plan.” Washington state, for example, requires “[a]ll licensees” to promptly develop a recall plan that “sets the procedures the licensee will follow in the event of a recall of the licensee’s product or products under the licensee’s control.”  Among other topics, such a plan “must include” (i) the “[d]esignation of a member of the licensee’s staff who serves as the licensee’s recall coordinator;” (ii) “[p]rocedures for identifying and isolating product to prevent or minimize its distribution to consumers;” and (iii) “[a] communications plan to notify those affected by the recall ….”

• Even if a formal “recall plan” is not legally required, a business can and should consider devising its own internal processes and procedures, so that it is not caught flat-footed in the event of a recall. Among other topics, such a plan could address (i) who to notify internally in the event of a product-related complaint and/or recall (e.g., legal, product safety, compliance, risk management), (ii) how to document a product-related complaint and/or recall, (iii) who can and should speak on behalf of the business in the event of a product recall, and (iv) how to alert the public of such a recall.  A business also should consider actively and routinely training at least key employees, if not all employees, about this plan.

• A business can and should obtain and maintain product liability insurance. As part of that insurance, or otherwise, it should consider obtaining at least some insurance for product recalls/withdrawals, which, potentially subject to certain exclusions, may at least provide some limited coverage for certain expenses associated with a recall/withdrawal. Covered expenses may include, for example, costs associated with notifying others of the recall, storing the affected product(s), disposing of the affected product(s), and/or paying employees overtime to respond to the recall/withdrawal.  Available coverage, which always turns on specific policy language, will differ among insurance policies.

• A business also should consider devising crisis-management and communications plans that can be activated in the event of a product recall. In certain situations, certain insurance policies (including, but not necessarily limited to, management liability policies sold to businesses in the cannabis industry) may provide at least some limited coverage for at least certain costs incurred in responding to a “crisis event,” which may include a product recall.

• A business should identify experienced outside legal counsel familiar with the cannabis industry who can help the business take the foregoing steps ahead of time and who can then also help the business respond appropriately if and when a recall becomes necessary. Involvement of counsel, in certain situations at least, may afford certain additional protections to certain communications, discussions, and documents – especially if any are prepared in anticipation of litigation.

Obviously, not all contingencies can be addressed proactively in such a plan, policy, or procedure. But, having at least some general framework in place ahead of time can and should, hopefully, reduce the response time, cost, stress, and uncertainty associated with any cannabis-related recall.

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in business restructuring & insolvency, corporate matters, employment & labor, estates & trusts, intellectual property, litigation & alternative dispute resolution, and real estate. In addition, the firm offers a wide range of legal services to clients in the aviation & aerospace, cannabis, construction, energy & natural resources, healthcare, and hospitality industries. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York, Philadelphia, Sarasota and Wilmington, DE.