Your Best Defense Against a Liability Suit

As our cannabis industry moves away from the War on Drugs (the War on Us) and toward major consumer markets, our challenges are changing. Which organizations in our industry will be the biggest winners? There is an answer. But first, we must understand the problem. There was a time in America when sickness and death from conventional products drove America to establish the U.S. Food and Drug Administration (FDA). Now, Americans trust their conventional foods and drugs.

By contrast, in China, a great number of infant sicknesses and deaths have destroyed consumer trust in the domestic Chinese dairy and infant formula industries. Chinese moms who can afford to do so buy foreign products for their children.

Do American consumers trust us, the cannabis industry? We’ve had some unfortunate headlines over the past several years, including at least one suspected death from cannabis with a rare fungus and many samples that tested positive for illegal or high levels of pesticides.

In order to succeed as providers to major American consumer markets, our organizations and our entire industry must produce safe products. After safety, American consumers expect value—safe, but great stuff, at as low a price as possible. This sounds like a challenge.

This Wheel Has Been Invented

How did wine making advance from uncontrolled complexity to predictable quality, safety and profitability? Once upon a time, wine making was a complicated mystery. Results depended on the sun, the rain and the temperature during the planting, growth and harvest seasons, on soil amendments and on pruning practices and, after harvest, on processing and bottling (packaging). Sound familiar?

Wine making moved from mystery to predictability (and profitability) when European monks, including Dom Perignon, consistently recorded their practices and results.

There are organizations in our industry that already understand and follow current Good Manufacturing Practices, generally known as cGMPs. These are systems of procedures in which organizations specify, in written detail, what they do, how they do it, the results that they expect and what they do when the results do not meet their specifications.

The FDA has published various cGMPs for food and drug products, and conventional American food and drug manufacturers follow them. CGMPs do not tell anyone what to do, but ask manufacturers of various products to establish and document methods of production that should yield consistently safe and high-quality products. CGMPs are related to the USDA’s Good Agricultural Practices and Good Handling practices (GAPs/GHPs). CGMPs are also related to quality management systems, whose explicit goals are to increase product quality and reduce product cost.

There’s more to the picture, especially in America, where the possibility of product liability lawsuits is real. When (not if) somebody sues you claiming that one of your products did some harm, your records and your retained samples will be your best (and only) defense.

Consider a real situation in the conventional American pharmaceutical world, dating from 2014: New England Compounding Center, a compounding pharmacy, has been linked through its products to 64 deaths and more than 700 illnesses. Most observers expect overwhelming financial liability and substantial jail time for those responsible. Obviously, something went very wrong and was not corrected very quickly. Many of the pharmacy’s suppliers have also agreed to very substantial settlements, totaling more than $200 million.

We have never had, and we never want, anything like that case in our industry. Anything like that case could damage or wreck not just one of us, but all of us.

The simplified diagram on page 106 can help you visualize critical cGMP-based quality control and quality assurance activities for a cannabis producer.

The diagram does not explain validation and standard operating procedures; our goal, however, is to present an overview of a system designed to assure ourselves and our consumers that we are efficiently producing quality products that create no basis for legal liability.

Within our industry, early regulations emphasized controls against illegal diversion of product. Controls over in-process materials and finished goods are necessary to a quality management system, but are completely insufficient for our purposes.

An effective quality management system will yield representative data regarding all inputs (including packaging), all processes and all finished products. The system will also yield retained samples of inputs, packaging and final products, and a basis for demonstrating that each of these (perfectly good) retained samples are representative of the batches from which they were taken.

Quality management systems, including cGMPs, will produce our industry’s biggest winners and will offer them a substantial barrier against legal attack.

Hindsight is always 20/20, so think of cGMPs as hindsight in advance.

Note: The authors do not provide legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for legal advice. You should consult your own legal advisors before acting on any related matters.

Rino Ferrarese is the COO of Connecticut Pharmaceutical Solutions, one of four licensed producers in the state. He has experience as a compliance officer working in FDA-regulated industries under the guidelines of current Good Manufacturing Practices (cGMP) for the production of prescription, Over-The-Counter (OTC) and homeopathic human drug products. He is a certified Six Sigma Black Belt and ISO auditor. Ferrarese also works with Elite Cannabis Enterprises developing and submitting competitive medical marijuana license applications for clients across the United States. Thomas Schultz is president of Connecticut Pharmaceutical Solutions. He is a Wall Street lawyer and investment banker turned pharmaceutical executive. In 1996, Schultz completed an IPO-oriented merger of the last major producers of witch hazel, the EE Dickinson Company and the TN Dickinson Company. He assumed leadership of Dickinson Brands Inc., the resulting firm, until 2014. By 2003, Schultz had led the buyout of the EE Dickinson interests and managed the acquisition of Humphreys Pharmacal Inc., a company that marketed witch hazel to Central and South American markets.