The Beginning of Cannabis Product Liability Class Proceedings in Canada and the U.S.

As Canadian and U.S. legislation paves the way for more cannabis production and use over time, an increasing number of cannabis companies will be looking to grow and distribute their products. With market demand growing, cannabis producers, like any other product manufacturers, must pay attention to safety and production standards.

Flores v Livwell, Dist. Ct., Denver County, 2015-CV-33528 (“Flores”) and Downton v Organigram Holdings Inc, 2019 NSSC 4 (“Downton”) are class proceedings filed in Colorado and Nova Scotia respectively. Both actions are deemed the first cannabis product liability class proceedings in their countries. In common with both actions was the alleged use of a dangerous pesticide to treat cannabis plants, Myclobutanil.

The former was dismissed because only pure economic loss was alleged, while the latter went ahead to be certified as a class action due to the sufficiency of common physical and economic injuries pleaded. The two cases are discussed below.

Flores v Livwell, Dist. Ct., Denver County, 2015-CV-33528

In Colorado, the country’s first cannabis class action, Flores, was brought to court on October 5, 2015. It was ultimately dismissed by the District Court of Colorado on February 11, 2016.

The plaintiffs attempted to bring a class action against Livwell Inc., a cannabis grower and dispenser. They alleged that Livwell had sold cannabis contaminated with Eagle 20, which contains a dangerous anti-fungal agent, Myclobutanil. Of note is the fact that the plaintiffs did not plead physical injury, but instead based their claim on pure economic loss. They argued that because the cannabis they bought from Livwell contained a dangerous pesticide, they had overpaid for the product.

Livwell filed to dismiss the case, arguing that the Plaintiffs lacked standing since they did not suffer an injury in fact. In Colorado, standing to sue is based on a two prong test – the plaintiffs must establish that they suffered an injury in fact, and that their injury was to a legally protected interest.

The Court decided that the plaintiffs did not suffer an injury in fact. The sole pleaded injury was overpayment for the contaminated cannabis product which they had consumed. The plaintiffs did not allege that the product did not perform as expected, or that they suffered any physical or emotional injury. The Court noted that in pure economic loss cases, injury in fact may be found where the defect reduced the original or resale value of the good. However, since the plaintiffs bought and consumed the product, there is nothing to resell or any intention to resell. As such, there was no injury in fact found, and thus no standing to sue.

Downton v Organigram Holdings Inc, 2019 NSSC 4

In Canada, the first cannabis product liability class action was certified earlier this year in Nova Scotia. In Downton, medical cannabis company, Organigram, cultivated and sold cannabis products which were the subject of a Health Canada recall. The company violated the Pest Control Products Act, SC 2002, c 28, when trace amounts of two pesticides, Myclobutanil and Bifenazate, were found on their plants. The pleadings alleged that consuming the contaminated products caused adverse health effects in the proposed class members.

In the end, the Court certified the class proceeding under a number of common issues. These included negligent design, development and testing; negligent distribution, marketing and sale; negligent manufacturing; waiver of tort; and breach of the Competition Act, Consumer Protection Act, and the Sale of Goods Act.

In their decision, the Court noted that a cause of action for negligence can be found since Organigram used a statutorily prohibited ingredient in the course of their production process. There was no need for a risk-benefit analysis regarding its distribution, unlike other product liability cases like Harrington v Dow Corning Corp., 2000 BCCA 605, which involved silicone breast implants.

Further, the Court held that there is commonality amongst the plaintiff class members. Each class member purchased medical cannabis which was later recalled by Health Canada. The fact that there is uncertainty around the causal connection between consuming the pesticides at issue and the alleged health consequences could not be used to Organigram’s advantage. This was enough to establish a common issue of Organigram’s liability between the proposed class members.

The Court noted that certain issues could not be resolved through a class proceeding, such as quantifying non-pecuniary and punitive damages. However, the Court accepted the plaintiffs’ argument that resolution of other common issues would allow the possibility of demonstrating specific causation. As such, despite the presence of individual causation issues, the Court held that a class proceeding is the preferable procedure for resolving the plaintiffs’ claims.

Conclusion

The cannabis industry has expanded exponentially in Canada and the U.S. since Flores was dismissed in Colorado and Downton was filed in Nova Scotia.

Despite the different conclusions of Flores and Downton, one common result is clear. Like any other health product and food distribution companies, cannabis cultivators are subject to the same product liability issues in the market. These two cases suggest that new and existing cannabis producers must pay extra attention their production standards, their use of pesticides, and the health and safety of the end-consumer.