CBD giant Charlotte’s Web Inc. failed to warn visitors to its website that conversations on its chat feature were being tracked, in violation of California law, a proposed class action lawsuit alleges.
The complaint accuses the company of violating the California Invasion of Privacy Act, which “prohibits both wiretapping and eavesdropping of electronic communications without the consent of all parties to the communication.”
Compliance with the law “is simple, and the vast majority of website operators comply by conspicuously warning visitors if their conversations are being recorded or if third parties are eavesdropping on them,” according to the lawsuit.
‘Invasive’
The complaint alleges visitors’ conversations on the site’s chat feature were tracked and stored by Ochatbot, a contractor that helped the company facilitate “invasive eavesdropping.” Ochatbot is an AI platform that offers chat applications in support of sales, marketing, and customer service.
“Ochatbot records and stores transcripts of each chat conversation, which it will compile into a report that is used by Ochatbot and defendant to evaluate the performance of both companies,” the suit says. “Ochatbot gathers the transcripts from live chat histories using AI and machine learning that enables Ochatbot to understand and analyze real-time ‘conversational inputs.'”
The lawsuit alleges Ochatbot’s privacy policy, which explicitly allows for the sharing and selling of all data it collects, was not disclosed to visitors to the CW website, many of whom disclose sensitive personal data while engaging in chats. A code that drives the chatbot was “surreptitiously implanted,” and is evidence of deception, the plaintiffs claim.
‘Relentless advertising’
The “extensive data-sharing arrangements” between Charlotte’s Web and Ochatbot leave customers open to a number of privacy risks, according to the plaintiffs, led by consumer Lillian Jurdi.
“By engaging in this data collection, the defendant enables the creation of detailed profiles about individuals, allowing the delivery of targeted advertisements specifically tailored to their personal interests,” according to the complaint. “This invasive practice not only compromises individuals’ privacy but also subjects them to relentless advertising campaigns across multiple platforms.”
‘Data driven’
Bill Morachnick, who joined Charlotte’s Web as CEO last autumn, touted the company’s use of technology in a “turnaround initiative” upon the release of 2023 financial results earlier this year. The effort, dubbed “True North,” “combines an operational and data-driven emphasis with the integration of marketing, sales, innovation, technology, and education,” Morachnick said.
In a press release, the company said, “Steady progress has been underway on the migration of the Company’s eCommerce platform, focused on enhancing the consumer journey. This migration is designed to increase consumer traffic, engagement, acquisition, loyalty, and subscriptions.
“This includes the integration of a new state-of-the-art Customer Relationship Management (CRM) platform enabling tailored content for specific demographic and psychographic profiles, including educational and lifestyle content that is designed to resonate deeply within consumer segments.”
2023 losses: $23 million
Charlotte’s Web was successful in having the lawsuit moved to the U.S. District Court for the Central District of California. It was originally filed in February in Los Angeles County Superior Court, part of the California state court system.
The Louisville, Colorado-based company reported a net loss of $23.7 million in 2023, an improvement over a loss of $59.3 million the year previous. Revenue fell by 14.8% to $63.2 million from $74.1 million in 2022, due to softness in both consumer and B2B sales, the company said. The company also said it was hurt by increased expenses, particularly due to costs associated with a licensing and media rights deal it entered with Major League Baseball in 2022.
With reporting by Law 360
