Honest Co., a Santa Monica start-up co-founded by actress Jessica Alba that sells more than 100 consumer products touted as healthy and nontoxic, has been hit with another lawsuit challenging its product claims.
This time the product is Honest’s organic infant formula, which the Organic Consumers Assn. alleged is falsely labeled because it “contains 11 substances prohibited by federal law from organics.”
But Honest said Thursday that the formula was cleared by the Food and Drug Administration and meets all safety and nutritional standards. The company said it was “confident this lawsuit will be dismissed.”
The formula is “also certified USDA Organic by an independent third party, in strict accordance with the National Organic Program,” the company said.
The fresh litigation also comes on top of media reports that Honest might be looking for a buyer rather than pursuing an initial public stock offering to expand its growth.
Honest sells a variety of baby-care, personal-care and home-care products, including diapers, shampoos and detergents, along with vitamins and supplements. The company’s products are carried on its website and at thousands of retail outlets.
It has amassed more than $220 million in private funding that has given the company an overall valuation of $1.7 billion.
But Honest’s contentions increasingly are being called into question, raising the risk that the principles who have allowed Honest to grow are being undermined.
“They better be in crisis-management mode right now,” said Bernhard Schroeder, a marketing expert who heads the Lavin Entrepreneurship Center Programs at San Diego State’s business school.
“They will have one good opportunity to handle” the string of allegations, he said, otherwise “it will be a major hit to the brand.”
The company already is facing class-action lawsuits in California and New York that accuse Honest of falsely advertising a number of its products as natural, plant-based and free of harsh chemicals.
Honest has dismissed the merits of those lawsuits.
In addition, a report last month in the Wall Street Journal said its tests showed the company’s liquid laundry detergent contained a chemical — sodium lauryl sulfate, or SLS, which can cause skin irritation — that Honest pledged never to use.
Honest defended its detergent and Brian Lee, another Honest co-founder, told The Times last month that “we’re in the right” and that the Journal “got things wrong.” The Journal said it stood by its story.
The latest lawsuit brought by the Organic Consumers Assn., which describes itself as a nonprofit public interest organization, alleged that 11 of the 40 ingredients in Honest’s Premium Infant Formula “are synthetic substances that are not allowed in organic products” and thus the product is falsely labeled.
The ingredients include sodium selenite, which the association contended is “an extremely hazardous and toxic synthetic compound.”
The suit contends that the ingredients are prohibited from organic formulas under federal and California law, and the OCA wants the court to stop Honest from selling its infant formula as “organic.”
Earlier this month, Women’s Wear Daily reported unidentified sources as saying that Honest’s annual sales are estimated at $250 million to $300 million.
The publication also said Honest had shifted from mulling a stock offering to considering a sale, perhaps to a much larger consumer-products company, to facilitate its future growth. Honest declined comment.
Selling a company has always been easier than going public, said Lise Buyer, founder of Class V Group, a firm that guides companies through the IPO process.
“There’s a huge amount of scrutiny that comes from the IPO preparation process,” Buyer said. “On the one hand, this is a very good thing because it imposes a level of financial discipline that a lot of private companies don’t have. But it’s also a pain to get there.”
Selling also offers privately held firms such as Honest a measure of certainty. With the ongoing volatility of the stock market, there’s no guarantee that an IPO will match the company’s private valuation.
But opting for a sale instead of going public is a trade-off, said Sandeep Dahiya, an associate professor of finance at Georgetown University’s McDonough School of Business.
IPOs are still regarded as a payday for the employees of a company and a way to boost public perception.
“It’s still the gold ring you’d like to grasp if you can, because apart from the amount of money you can raise, there’s a certain amount of credibility a company acquires,” he said. “It’s a classic ‘look at me’ scenario.”