ARE YOU READY? AND WHY IS IT IMPORTANT TO YOU?
On August 30th new regulations requiring warning signs about Proposition 65 dangers, cannabis exposure and BPA in packaging come into effect. It’s a trifecta of new compliance requirements, and it’s going to expose California alcohol and cannabis licensees to significant penalties for those that don’t pay attention.
The Proposition 65 warnings – not the warning you are used to!
The California Office of Environmental Health Hazard Assessment (OEHHA) adopted new Proposition 65 warning requirements that take effect on August 30, 2018.[i] The new regulations significantly change the current regulations and require all suppliers, importers and distributors to change the warnings they currently provide to their retail customers.
And, although the new regulations relieve retailers of some burdens in providing the warnings, retailers are still responsible for the actual posting of required warnings provided to them and could be held liable for failure to do so. All ABC licensed retailers, on-sale (of all sorts including bars, restaurants, tasting rooms, entertainment venues and hotels) and off-sale (of all sorts) must have the signage posted in their premises in a conspicuous manner where the signs will be seen by the consuming public.
Failure to understand and comply with the New California Proposition 65 Warning Requirements is a bonanza for the Proposition 65 Plaintiffs Bar
The mandated Proposition 65 warnings apply to all products sold in California regardless of where the products are manufactured and, the bottom line is, if you violate these detailed regulations, you could face significant monetary penalties and attorney’s fees from the plaintiff’s gathering to commence enforcement.
The state Attorney General rarely files actions for Proposition 65 violations. However, the law allows any private individual to act “in the public interest” by serving any company with “notice” of some alleged violation. With few exceptions, the party serving the notice may file a civil suit any time after 60 days following the date the company receives the “notice” if the state Attorney General does not take the action over within those 60 days.
The penalties that are in the law may be imposed on a sliding scale ranging up to $2,500 per day per violation – – going back as far as one year. And, the penalty is not dependent on how much product is sold. Should the case go to trial, a defendant who loses must pay all attorney fees and costs to the private attorney and, trust us, these fees are always significant. However, should the defendant win, the private individual suing does not have to reimburse the defendant for his attorney fees and costs.
Nearly all actions by private individuals end up being settled out of court and most often for a significant sum primarily because:
(1) In these cases, the defendant must prove to prove a violation did not occur;
(2) Very few insurance policies will cover the costs of Proposition 65 litigation;
(3) Even if the defendant wins, the defendant cannot recover attorney fees from the other party; and
(4) The cost of litigation is generally too high for any benefit received.
To further illustrate: in the years 2016 and 2017, there were a total of 687 private party “notices” that were settled out of court for a total amount of nearly $18 million. Over $14 million of the $18 million was awarded directly to the private attorneys for “attorney fees and costs.”
Do we have your attention yet?
The New Rules
The California Code of Regulations implementing the Proposition 65 law has been restructured and many new provisions were added. These new regulations will be effective on August 30th. Some of the most significant changes in the rules include:
(1) Changes to the “safe harbor” text for the mandated warnings.
(2) New provisions addressing Internet sales warnings.
(3) And clarification of the roles and responsibilities of manufacturers and retailers in providing the warnings.
The OEHHA developed new text for alcoholic beverages warnings. You must use this exact wording for “safe harbor” from alleged violations. Although the new regulations allow businesses to use the existing Prop 65 warning statements until August 30th, companies may use the new warnings now, before August 30th. After August 30th, the old warnings will no longer provide you with a “safe harbor.”
Important details in the new rules
Because it is critically important to pay close attention to the details in the regulations (to guard against alleged violations), this blog contains a great deal of detail on the new Proposition 65 rules.
Honest – the details matter!
New definitions added to the rules
Important new or revised definitions include:
“Consumer product” means any article, or component part thereof, including food, that is produced, distributed, or sold for the personal use, consumption or enjoyment of a consumer.
“Consumer product exposure” means an exposure that results from a person’s acquisition, purchase, storage, consumption, or any reasonably foreseeable use of a consumer product, including consumption of a food. (This means simply purchasing the product creates “exposure”.)
“Retail seller” means a person or business that sells or otherwise provides consumer products directly to consumers by any means, including via the internet.
“Sign” means a physical presentation of a written, printed, graphic, or electronically provided communication, including shelf signs, other than a label or labeling, posted in a conspicuous manner that is associated with the exposure requiring a warning under the Act and is clearly visible under all lighting conditions normally encountered during business hours and under such circumstances as to make it likely to be seen, read, and understood by an ordinary person.
Responsibility for providing the mandatory warning
Every in-state and out-of-state manufacturer/distributor/importer/retailer who sells an alcoholic beverage to a California consumer must provide a “clear and reasonable” warning to the end consumer prior to the consumer purchasing the product.
Although companies with 9 or fewer employees are generally exempted from providing the required warning, know that if you sell products to a larger retailer who is not exempt, the large retailer may require you to comply with the Proposition 65 warning requirement regardless of your size or location. It is always a good practice to check your general retailer vendor agreements, and the terms of any retailer generated purchase order.
The same rules apply to an exempt small importer or distributor if the manufacturer of the product has over 9 employees. Even if you, as the distributor or importer, are exempt, the larger manufacturer is NOT exempt. Again, you must check your contracts regarding how they set forth the responsibilities and liabilities of each party related to providing the warnings.
Specific Warnings Required for Alcoholic Beverages
The old text and rules regarding alcoholic beverages warnings will be repealed on August 30, 2018 and the new regulations will be the only rules that apply and that will provide “safe harbor” from any allegation of a violation.
Below is a summary of the most important changes that affect the alcoholic beverage warnings. (Note: Specific warnings related to the sale/distribution of cannabis products in California are noted at the end of this blog.)
- Alcoholic beverages manufacturers/distributors have primary responsibility to provide the warnings.
- Unlike most manufacturers who may include the Proposition 65 warning directly on the label, alcoholic beverages manufacturers are precluded from putting the Proposition 65 warning on labels because all alcoholic beverages labels must be approved by the TTB (Alcohol & Tobacco Tax and Trade Bureau and contain the federal government warning which is not the same as, nor compliant with, the California Proposition 65 warning. The federal government warning on the label will not provide “safe harbor” under California law.
- The manufacturer/distributor/importer’s warning signs must be provided to each retailer with a written notice provided directly to the retailer or its authorized agent and the information provided must also include text to be used for online product pages.
- The manufacturer/distributor/importer must obtain and keep a written reply from the retailer. The reply may be sent either electronically or in writing but must confirm that the retailer has received the notice.
- While the new rules state the manufacturer/distributor’s notice must be received by the retailer no later than February 28, 2019, failing to provide the notice at any time after the August 30th deadline will leave you open to a violation claim, so do it now.
- The required notice to the retailers must be renewed annually.
- The retailer is responsible for the placement and maintenance of warning materials, including warnings for products sold over the Internet.
- The retailer can be found liable if he/she fails to adequately post the warnings provided by the manufacturer.
- The regulations allow manufacturers/distributors/importers and retailers to contract with each other to specify which party must provide the required warnings. (Always check your contracts!)
The new text and content for the alcoholic beverages Proposition 65 warnings
- The text of the new warning must include the word “WARNING” in all uppercase.
- The mandatory text for alcoholic beverages must now include the Prop 65 warning website address.
The new rules provide two options for the warning signs:
(1) Posting an 8½ by 11-inch sign in no smaller than 22-point type, placed at eye level in a location that is readable and conspicuous to customers as they enter the area where alcoholic beverages are sold, or
(2) Posting a notice or sign no smaller than 5 by 5 inches placed at each retail point of sale or display to assure that it is readable and conspicuous. This type of warning notice must be in a type size no smaller than 20-point type and be enclosed in a box (as shown below).
The manufacturer or distributor must provide these signs to retailers: