Attorney General Wasted DOJ Resources To Investigate Marijuana Mergers Due To Personal Bias, Official Alleges

Attorney General William Barr’s personal opposition to marijuana led him to direct improper antitrust investigations into multiple cannabis company mergers—accounting for nearly one-third of the division’s cases in 2019—according to written testimony from a current Justice Department official who is slated before the House Judiciary Committee on Wednesday.

Those investigations, which appear to have influenced the end of at least one major merger between MedMen and PharmaCann, were protested by career DOJ staff who objected to the rationale for such inquiries. The Justice Department’s Antitrust Division typically must demonstrate that there’s substantial risk of anticompetitive harm for mergers it investigates, including the potential for monopolization.

The official stressed that the directive from Barr resulted in the waste of departmental resources, with cannabis transactions at one point representing “five of the eight active merger investigations in the office that is responsible for the transportation, energy, and agriculture sectors of the American economy.”

Via House Judiciary Committee.

“The investigations were so numerous that staff from other offices were pulled in to assist, including from the telecommunications, technology, and media offices,” John Elias, who has been with the department for 14 years, said.

In March 2019, Barr reportedly called Antitrust Division leadership into a meeting titled “Marijuana Industry Merger Review,” the testimony states. Staff were instructed to prepare a briefing memo on the MedMen-PharmaCann transaction and concluded that it “was unlikely to raise any significant competitive concerns that would justify issuance of” a secondary request investigating the merger.

Elias emphasized that this was just one example of an investigation directed by Barr that was “undertaken over the objections of the career staff.”

And the excess scrutiny of marijuana companies didn’t stop there.

Under Barr’s influence, “the Antitrust Division launched ten full-scale reviews of merger activity taking place in the marijuana, or cannabis, industry,” Elias said. “These mergers involve companies with low market shares in a fragmented industry; they do not meet established criteria for antitrust investigations.”

“When career staff examined the transaction, they determined that the cannabis industry appeared to be fragmented with many market participants in the states that had legalized the product,” he continued. “As a result, they viewed the transaction as unlikely to raise any significant competitive concerns.”

Nonetheless, the nation’s top prosecutor pursued the unconventional legal proceedings, ordering “the Antitrust Division to issue Second Request subpoenas.”

Why? According to Elias, the decision “centered not on an antitrust analysis, but because he did not like the nature of their underlying business.”

“The head of the Antitrust Division, Assistant Attorney General Delrahim, responded to internal concerns about these investigations at an all-staff meeting on September 17, 2019,” the official said. “There, he 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.”

“Personal dislike of the industry is not a proper basis upon which to ground an antitrust investigation.”

This personal animosity to the cannabis industry seems at odds with statements the attorney general has made in various congressional hearings, where he expressed interest in resolving the state-federal conflict over marijuana policy and stated that the status quo is not tenable. Last year, he said that while he personally opposes legalization, he would prefer for Congress to pass a bill respecting the rights of states to implement their own cannabis policies rather than maintain blanket federal prohibition.

Following the meeting that Barr orchestrated to review the cannabis mergers, which was first reported by The New York Times, DOJ staff did not issue recommendations into launching an investigation or issuing subpoenas

“Instead, the staff reiterated its view that the transaction was ‘unlikely to raise any significant competitive concerns’ and that the industry appeared to be fragmented, with many participants,” the testimony states. “The staff went on to say that, nonetheless, ‘[t]he Division has decided to open an investigation and issue Second Requests,’ for the purported reason that it had ‘not closely evaluated this industry before.’ This rationale—standing alone, without reference to a competition problem—is not described in the Merger Guidelines as a basis for investigating a transaction.”

“The Division’s Front Office negotiated subpoena compliance with the companies, obtaining 1.3 million documents from the files of 40 employees,” it continues.

Ultimately, across 6 of the 10 investigations for which data are available, 5,965,000 documents were produced by the companies under inquiry.

Via House Judiciary Committee.

“Staff continued to document at the outset of the investigations that the transaction appeared unlikely to raise significant competitive concerns but that the Division (meaning the political leadership) nonetheless had decided to proceed, purportedly because it had not closely evaluated this industry before,” Elias said.

Further, DOJ staff was asked to minimize attention to the investigation. Part of that meant “career staff was not permitted to take customary fact-finding steps.”

“For example, staff was instructed not to conduct interviews of customers or competitors – a necessary step in any bona fide antitrust investigation both to assess marketplace conditions and to identify potential witnesses in any enforcement action,” the testimony states. “In several instances, staff sought to make the investigation less burdensome on the parties by narrowing the subpoenas. Political leadership refused such requests.”

A Judiciary Committee hearing on DOJ interference into prosecutorial independence, where Elias is scheduled to testify on this and other matters, is scheduled for Wednesday.

Read the testimony on DOJ activity on marijuana antitrust investigations below: 

Testimony On AG Barr Scruti… by Marijuana Moment on Scribd

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