On June 23, 2020, John Elias, a profession Department of Justice (DOJ) official, submitted written testimony to the U.S. House Committee on the Judiciary (the Committee) in response to a Congressional investigation into the politicization of the DOJ workplace beneath Attorney General William Barr. Elias claims Barr directed the DOJ’s Antitrust Division (the Division) to unjustly goal hashish firm mergers as a result of Barr personally dislikes the hashish business. The DOJ’s inside watchdogs investigated Elias’ claims towards Barr and decided (1) the DOJ’s hashish merger investigations had been warranted given the complexity of the hashish business and the Division’s lack of expertise with such corporations, and (2) even when Barr had been motivated by his private animus, that will not violate any legislation, regulation, or coverage.

Elias offered reside testimony to the Committee on June 24 and Barr is scheduled to do the identical on July 28, nevertheless, it’s possible he won’t handle this hashish controversy given the lengthy checklist of high-profile scandals involving Barr and the DOJ. A latest Forbes article by Matt Perez offers a timeline of the assorted controversies surrounding Barr, together with his dealing with of the Mueller investigation, the prosecution of Michael Flynn and Roger Stone,  and the sudden elimination of US Attorney Geoffrey Berman. Perez’s article even refers to those hashish claims as a “tangent.”

Perez could also be proper that within the grand scheme of issues, these hashish claims are a tangent, however we’re the Canna Law Blog and a story in regards to the DOJ, federal antitrust legislation, and hashish mergers is what we name a characteristic!

John Elias’ Claims

It bears repeating that John Elias is a profession worker of the DOJ’s Antitrust Division, not a hashish activist. Elias served beneath the Bush, Obama, and Trump administrations and he introduced his motion as a result of he was troubled by what he sees as an uncontrolled and vindictive DOJ:

I’ve undertaken whistleblower exercise, and am right here at this time, as a result of I acknowledge the crucial for legislation enforcers to function even-handedly and in good religion. During my profession at DOJ, I’ve been taught to do the best factor, for the best causes, in the best approach.

Elias’ testimony centered, partly on “ten full-scale reviews of merger activity taking place in the marijuana, or cannabis, industry.” Elias claims that Barr ordered the DOJ’s Antitrust Division to research these ten proposed mergers as a result of Barr “did not like the nature of their underlying business,” reasonably than out of a need to research doubtlessly anti-competitive actions.

Elias’ outlines the “Standard Merger Review Process” of the Antitrust Division. First, the Division identifies and evaluations proposed mergers almost definitely to lead to a violation of antitrust legal guidelines and then decides whether or not to undertake an investigation. The Division makes use of “market shares as a key indicator of whether to give routine clearance or to perform the full and most searching examination of the merger by issuing what is called a ‘Second Request’ subpoena. It usually takes high market shares – typically double-digit market shares – to trigger the extended review process.” Second Request investigations are rare as a result of they’re very burdensome. Only 1-2% of all mergers filed with the Antitrust Division lead to a Second Request investigation.

According to Elias, in 2019, the Antitrust Division reviewed the proposed merger between hashish companies and decided that additional investigation was not required:

[T]he Antitrust Division reviewed the proposed mixture of MedMen and PharmaCann, two corporations that offer hashish. When profession employees examined the transaction, they decided that the hashish business seemed to be fragmented with many market contributors within the states that had legalized the product. As a outcome, they considered the transaction as unlikely to lift any vital aggressive considerations.

Despite this, Barr ordered the Division to difficulty Second Request subpoenas. The Antitrust Division obtained 1.three million paperwork from the 2 corporations. In the tip, the Division confirmed the markets had been “unconcentrated” with no antitrust violations. The merger between MedMen and PharmaCann finally fell by way of. The burden of responding to those subpoenas didn’t assist.

The Antitrust Division went on to conduct comparable investigations of 9 different hashish mergers. In 2019, the hashish business accounted for 29% of all Second Request investigations. This was such a pressure on the DOJ’s Antitrust Division assets that employees from different workplaces similar to telecommunications, expertise, and media had been introduced in to help. Ultimately the antitrust Division collected over 5 million paperwork from these investigations and in each case, no antitrust violations had been uncovered.

DOJ Investigation Finds No Misconduct by Barr

Before offering his written testimony to Congress in December 2019, Elias, together with one different whistleblower, requested one other wing of the DOJ, the Office of Professional Responsibility (OPR) examine the large variety of Second Requests directed at hashish corporations. After Elias’ damning testimony broke on June 23, Politico obtained a copy of OPB’s report.

OPB decided Barr’s conduct was justified, partly, as a result of “[t]he cannabis industry provided a unique challenge to federal and state regulators alike, and it was reasonable for the [Antitrust Division] to seek additional information from the industry through its Second Request process.” But the OPR report went a step additional and discovered that even when the whistleblowers’ allegations had been true, OPR finds that the Antitrust Division’s “Second Requests would not have violated any relevant laws, regulations, rules, policies, or guidelines.”

As a lawyer who believes within the equal enforcement of our legal guidelines, I discover it very regarding that the OPB discovered that it didn’t matter whether or not Barr was motivated by anger in the direction of the business in deciding to allocate substantial taxpayer assets to investigating these ten mergers.

The Complicated Relationship Between the Cannabis Industry and the Feds

The hashish business has grown quickly since Colorado and Washington first legalized leisure marijuana in 2012. As the business has expanded, federal businesses have needed to give you methods for addressing companies that function in violation of the Controlled Substances Act. In a 2016 Canna Law Blog publish, Hilary Bricken outlined this phenomenon by itemizing among the approaches taken by the federal authorities:

It’s no secret that within the wake of the 2013 Cole Memo federal businesses enormously range in how they deal with marijuana companies. The Department of Justice has opted to “stand down” for now in these states with “robust state marijuana regulations.” The Internal Revenue Service won’t relent on implementing part 280e towards hashish companies, regardless that to take action means marijuana companies are handled much more harshly than different companies. The Bureau of Reclamation blocks federally-regulated water for hashish growers. The federal courts refuse to supply chapter aid for marijuana companies. The U.S. Patent and Trademark Office typically won’t permit logos for marijuana merchandise. The U.S. Postal Service won’t allow advertisers to put marijuana adverts within the mail. The Food and Drug Administration has gone after “CBD companies” for making allegedly unsubstantiated medical claims about their merchandise. And but the National Labor Relations Board has gone after dispensary house owners for union busting, the Securities Exchange Commission is permitting ancillary companies to commerce within the pink sheets, and the Department of Treasury–by way of FinCEN–has slowly opened the door for banks to do enterprise with these within the hashish business.

Three years later, in Federal Antitrust Scrutiny and (Certain) Cannabis Deals, Hilary continued this theme by writing about  the DOJ’s give attention to hashish mergers:

If you observe hashish, you’ll additionally know that the M&A market in numerous states has remained sizzling for someday now, particularly as hashish licenses turn into more durable to come back by for one purpose or one other. You can now add the Department of Justice (DOJ) to the checklist of federal businesses collaborating in and across the hashish business, and no, it’s not for prison prosecution causes. Quite the opposite–the DOJ is taking a harder look at greater hashish mergers to make sure that federal antitrust competitors legal guidelines usually are not being violated. Namely, it’s checking to ensure the deal will neither create a monopoly nor cut back competitors or innovation. Though this will likely sound troubling, it truly alerts that the DOJ is taking hashish mergers significantly in how they might or might not have an effect on competitors and customers within the hashish business.

At that point we had no approach to know the extent to which hashish mergers can be topic to Second Requests, however as Hilary’s posts present, elevated federal authorities regulatory scrutiny is a actuality for many hashish companies. By approach of one other instance, the IRS is more likely to audit marijuana companies than their non-marijuana counterparts.

Barr’s Views on Antitrust Law and Drugs

William Barr has twice held the workplace of Attorney General. He was first appointed by George H.W. Bush within the early 1990s and held the workplace till Bill Clinton defeated Bush in 1992. Barr has at all times believed the important thing to successful the conflict on medication is  by way of punitive enforcement and he has constantly supported mass incarcerations, signing off on a report titled “The Case for More Incarceration.” In a 2001 retrospective interview on the Bush Presidency, Barr criticized federal judges who complained to his workplace about having to listen to so many circumstances involving violent crimes:

I mentioned to them privately, and mentioned a variety of occasions publicly, that this was elitist nonsense, that they had been there to serve the individuals, and if this was a excessive federal precedence, they’d do their jobs as judges. They’re not above the fray, and the truth that they’d reasonably piddle round with some antitrust case or one thing else was irrelevant. I had no sympathy for his or her bitching about these sorts of crimes in federal court docket.

If nothing else, Barr’s time on the DOJ signifies he cares a lot extra about hashish and medication than he does about antitrust, which is in keeping with Elias’ claims that Barr was motivated by his dislike of the underlying hashish enterprise reasonably than concern over competitors.

Skipping forward to 2019, Trump appointed Barr after firing Jeff Sessions, who was a staunch and vocal opponent of hashish legalization however didn’t truly do a lot of something as AG to decelerate legalization past rescinding the Cole Memo. When Barr was requested throughout his affirmation listening to in regards to the stress between federal and state legislation on hashish, he played it down the middle indicating that although he didn’t assist state actors working in defiance of federal legislation he additionally didn’t see a urgent purpose to go after state-legal actors. That’s not the way it has performed out.

Conclusion

We might not know for a few years why the DOJ’s Antitrust Division pushed so laborious to research these ten hashish corporations, however everyone knows already there’s something very fishy about it. What bothers me essentially the most is how these investigations did and will proceed to hamper the expansion through mergers of the hashish business. What additionally bothers me — and one thing I can’t put out of my thoughts — is how threatening it’s for the investigated hashish corporations to have to supply just about each doc they should Barr’s DOJ. Will the DOJ use these paperwork to pursue these corporations and their executives for different issues? Five years in the past, this is able to not have occurred to me, but when Trump will get re-elected, that is a severe fear particularly if Barr sticks round.

Compare Barr to the person he changed, Jeff Sessions. Sessions hated marijuana however he was too incompetent to do something aside from rescind the Cole memo. The business marched proper alongside. Barr then again, pulled the levers of the DOJ to research ten hashish mergers with out drawing any consideration. Barr has quietly accomplished extra injury to the hashish business Sessions ever did with loud “Reefer Madness” rhetoric.  Sessions was bumbling and inept as AG. Barr is calculating and skilled, which makes him way more harmful.

We wouldn’t have even identified about Barr’s investigations if it was not for John Elias. It took guts for Elias to report what he noticed because the DOJ’s unethical remedy of the hashish business. By doing so he has earned this hashish legal professional’s respect and he ought to earn the respect of anybody else who believes within the rule of legislation, versus rule by legislation. I hope that there are different “John Elias” on the market working behind the scenes. We want them now greater than ever.

 

The publish Cannabis, Competition, and a Constitutional Crisis appeared first on Harris Bricken.

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