The California-based, vegan company, Miyoko's Kitchen, has sued the state in U.S. district court.
The complaint claims products labelling rules from the California Department of Food and Agriculture and its Milk and Dairy Food Safety Branch violate the company's First Amendment rights.
Miyoko's Kitchen is the manufacturer of a dairy-free product, famous for its vegan butter and plant-based cheeses.
In December, Miyoko's received a letter from state regulators telling the company to stop using the phrase "100% cruelty and animal free" on its products and its website, as well as dairy terms such as "butter" on its vegan butter.
The company was also forced to remove the picture of a woman hugging a cow from its website.
CEO Miyoko Schinner told the San Francisco Chronicle she found the letter "absurd."
She believes the state is trying to set a precedent that animals can only be seen as food.
Schinner decided to take legal action because the state's limitations on marketing and labelling the vegan products could negatively affect her company and the plant-based food industry.