On Wednesday, details will emerge for the first time that shed light on how the US Department of Justice, under the direction of Attorney General Bill Barr, has handled major cannabis acquisitions. John W. Elias, an official in the DOJ’s antitrust division, will testify before the U.S. House Committee on the Judiciary.
Deep within a story published by the New York Times on Tuesday, about the politicization of Roger Stone’s case and his friendship with President Donald Trump, were two mentions of “marijuana,” albeit with major implications for the industry:
“According to Mr. Elias’s written opening statement, he will accuse the department of inappropriately using its antitrust power to investigate 10 proposed mergers and acquisitions in the marijuana industry because Mr. Barr ‘did not like the nature of their underlying business.’”
Large deals often require clearance from the DOJ and the Federal Trade Commission, as outlined by the Hart-Scott-Rodino Antitrust Improvements Act. This includes cannabis companies, even though cannabis remains illegal under federal law. Last June, an FTC spokesperson confirmed to Cannabis Wire that cannabis companies “are like any other company,” and expected to file if the size of the deal meets the threshold. The FTC would not elaborate on how the process might be different for cannabis companies.
Cannabis Wire’s inquiry was prompted after several cannabis companies announced deals valued at hundreds of millions of dollars, and therefore subject to federal approval. Just a few: Cresco’s acquisition of Origin House and of Tryke Companies; Harvest Health and Recreation’s acquisition of Verano; Curaleaf’s acquisition of Cura; Columbia Care’s acquisition of The Green Solution; MedMen’s acquisition of PharmaCann. (Most of these deals either fell through or have yet to be completed.)
More than four pages of Elias’ written testimony are dedicated to cannabis investigations.
The testimony lays out “two forms of investigations undertaken over the objections of the career staff,” one including cannabis. On cannabis, “at the direction of Attorney General Barr, the Antitrust Division launched ten full-scale reviews of merger activity taking place in the marijuana, or cannabis, industry. These mergers involve companies with low market shares in a fragmented industry; they do not meet established criteria for antitrust investigations.”
Since March 2019, Elias writes, ten cannabis-related investigations have taken place. The MedMen acquisition of PharmaCann, which ultimately fell through, is the only one named.
On March 5, 2019, Barr called for a “Marijuana Industry Merger Review” meeting with the Division, attended by Elias. Interestingly, DOJ staff considered the cannabis industry to be “fragmented” and therefore felt the MedMen-PharmaCann deal was “unlikely to raise any significant competitive concerns.” Still, at that meeting, Barr called for a “Second Request,” which Elias notes only happens in “1-2% of the thousands of mergers filed each year.” (That investigation closed in September.)
Eight of the remaining nine deals were also subject to “Second Request” investigations, making up 29% of all such investigations conducted in Fiscal Year 2019. Elias counts nearly 6 million documents exchanged in the course of six of these investigations and writes that the “investigations were so numerous that staff from other offices were pulled in to assist, including from the telecommunications, technology, and media offices.”
(As Cannabis Wire has reported, Harvest and Cresco also received “Second Request” subpoenas. While the Harvest-Verano deal fell through, Cresco announced it completed its acquisition of Origin House in January.)
In September, according to the testimony, Assistant Attorney General Makan Delrahim “acknowledged that the investigations were motivated by the fact that the cannabis industry is unpopular ‘on the fifth floor,’ a reference to Attorney General Barr’s offices in the DOJ headquarters building.”
Elias concludes: “Personal dislike of the industry is not a proper basis upon which to ground an antitrust investigation.”