During an hours-long Congressional hearing on Wednesday, a whistleblower revealed just how “unpopular” cannabis is under this Justice Department.
John W. Elias, a career department employee, testified that he reported several antitrust investigations launched under Attorney General William Barr to the Department of Justice Inspector General in order to determine, according to Elias’ testimony, whether these investigations “constituted an abuse of authority, a gross waste of funds, and gross mismanagement.”
While cannabis remains federally illegal, several large cannabis companies have expanded their national footprint by becoming “multistate operators,” or MSOs, via acquisitions. Wednesday’s hearing focused, in part, on mergers and acquisitions among these big cannabis companies.
Elias talked about two specific types of antitrust investigations that occurred under Barr: first, an agreement between President Donald Trump and four automakers in California over fuel emissions; second, those related to the cannabis industry.
Elias described to House Judiciary committee members how, at Barr’s direction, the Department of Justice Antitrust Division launched ten “full-scale reviews of merger activity” underway in the cannabis industry.
“It is unacceptable that he would order the Antitrust Division to initiate pretextual investigations into industries that he and the president do not like simply because they do not like them,” House Judiciary Committee Chair Jerry Nadler said in his opening statement. “It is dangerously misguided for him to threaten frivolous litigation against state and local officials doing their best to contain the COVID-19 epidemic in their communities.”
At the start of his spoken testimony, Elias said that it was “personal” and “does not represent the views of the department throughout my career in federal service. I have been taught to do the right thing for the right reasons in the right way.”
Then, Elias detailed the events that pushed him to speak up when it came to the cannabis industry.
“These mergers were not even close to meeting established criteria for these kinds of investigations. And yet, these cannabis investigations accounted for a full 29 percent of the Division’s full review investigations last fiscal year,” Elias said, adding that, for context, “these kinds of investigations are rare,” and that roughly 1% or 2% of thousands of transactions brought before the Antitrust Division are selected for a full review.
As Cannabis Wire has reported, major 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. When asked by Cannabis Wire, the FTC would not elaborate on how the process might be different for cannabis companies.
The first investigation by this Division was the merger of MedMen and PharmaCann. This $682 million merger deal, signed in December 2018, was killed in October 2019. At the time, MedMen said the decision was based on several factors, mainly the company’s desire to focus on California. The company also mentioned the “underperformance” of cannabis stocks in the US and Canada last year, and delays due to “regulatory hurdles at the federal and state level.”
Elias said that career attorneys examined the announced deal and concluded that the transaction “called for no further antitrust review.” Still, Elias described to House Judiciary Committee members, on March 5, 2019, Barr “called the Antitrust Division leadership to his office and ordered the Division to proceed with a full investigation,” and the Division did as they were told. They issued “burdensome” subpoenas that resulted in 1.3 million documents being produced by 40 employees, “all at great expense to the companies.”
“Although the Division ultimately found no evidence of antitrust problems, the companies abandoned the merger, citing delays in regulatory approval,” Elias said.
Next, the Division embarked on similar investigations of nine other mergers of cannabis companies, sparking similar tsunamis of documents, despite the fact that the Division documented the absence of any antitrust issues, and that some “companies operated in completely different geographies and did not compete at all,” Elias said.
The Division still handed out subpoenas, which forced the office handling the situation to staff up from the telecommunications, media, and technology offices, Elias said, because they “became so overwhelmed with cannabis investigations.”
Then, prompted by concerns about these cannabis industry investigations, Assistant Attorney General Makan Delrahim, the head of the division, “acknowledged” at an all-staff meeting that the cannabis industry is “unpopular” on the fifth floor, meaning where Barr’s offices are located at the DOJ headquarters.
“Personal dislike of an industry is not a valid basis upon which to ground any antitrust investigation,” Elias said.
Tennessee Rep. Steve Cohen asked about the steep costs of the cannabis-related inquiries, including for cannabis companies to produce the necessary documents.
“It was harassment by Bill Barr of an industry he didn’t like, is that right?” Cohen asked Elias, who responded, “I think that’s a fair way to characterize it, yes.”
Washington Rep. Pramila Jayapal also spoke about the taxpayer costs of the cannabis investigations, asking Elias specifics about how many people were brought in to help, and how much the DOJ actually even reviewed the documents produced by cannabis companies. Elias responded that he thought a “very small number of the documents were reviewed.”
Georgia Rep. Doug Collins pushed back against Elias’ assertions, saying that the “credibility of this is going downhill” after Elias didn’t know the answer when Collins’ asked whether cannabis was Schedule I. Collins also said that the Office of Professional Responsibility concluded that the investigations were above board, and that there was a “significant amount of analysis regarding the competitive impact of the proposed mergers” and “how the actions of state regulators offset competitive concerns,” therefore “basically undercutting the very discussion that you had in your opening statement.”
Rep. Cohen of Tennessee also highlighted the disparity in arrest rates between Black and white Americans, despite comparable use rates. Conversations about state-level legalization efforts across the US have increasingly focused on criminal justice, with expungement and equity at the center.
“Barr doesn’t like marijuana,” Cohen said. “Marijuana is seven times more likely to be enforced against young African Americans, breeding discontent with police, breeding interactions with police. And Barr doesn’t care about that type of stuff because he doesn’t like marijuana, so that’s okay. That’s one of the breeding grounds of distrust of African Americans and police.”
