Attorney General Directed Agriculture Antitrust Investigations to Harass Cannabis Businesses, Whistleblower Says
Photo courtesy of Shane T. McCoy for the US Marshals via Flickr
A whistleblower from the Department of Justice’s (DOJ) Antitrust Division testified before Congress last week that Attorney General William Barr had disproportionately directed antitrust enforcement resources to scrutinize relatively small mergers between cannabis firms out of a personal dislike for the industry.
Cannabis merger investigations made up 29% of all merger reviews in 2019, overwhelming the office overseeing agricultural antitrust work, DOJ attorney John Elias said.
While there’s a case for studying and safeguarding against early concentration in the new and potentially large industry of legalized cannabis, the sheer volume and questionable execution of these investigations suggest that Barr primarily intended to delay deals and incur costs to cannabis companies, rather than to ensure fair competition.
These investigations demanded the energies of agricultural antitrust enforcement at the same time that authorities were reviewing allegations of industry price fixing and market manipulation. While the DOJ investigated small cannabis mergers, it did not investigate consequential deals in other agriculture sectors, such as National Beef’s takeover of independent packer Iowa Premium.
“You have finite resources in the DOJ, and if they’re investigating cannabis mergers, what aren’t they investigating?” asked Maurice Stucke, a University of Tennessee law professor and former DOJ antitrust attorney.
Last Wednesday, Elias, a career DOJ antitrust attorney, testified before the House Judiciary Committee that Barr had abused his authority and misdirected antitrust enforcement to pursue politically motivated investigations of both the cannabis industry and automakers’ carbon emissions agreements with the state of California.
Federal enforcers consult established guidelines to determine whether a proposed merger might violate antitrust law and merits review. Since the 1980s, these guidelines have been permissive to most mergers. In the rare instance that DOJ investigates a merger, the department will issue a Second Request, which allows the department to collect hundreds of thousands or even millions of documents from merging companies. Second Requests are technically subpoenas, and corporations must comply or forgo the merger. This process can be costly for merging businesses; a 2014 survey estimated the median cost of complying with a Second Request was $4.3 million.
DOJ performs these deeper investigations on only 1%-2% of all mergers annually – typically the largest ones. According to Elias’ testimony, the department only conducted 31 Second Requests in the 2019 fiscal year, 29% of which were of cannabis mergers.
Elias said the 10 investigated cannabis mergers were relatively small and did not meet the criteria for a Second Request. For instance, one of the investigated mergers would have created a company with a combined market share of just 0.35%.
Staff members justified the investigations on the grounds that the department had “not closely evaluated this industry before.” While there are valid reasons for antitrust enforcers to scrutinize killer acquisitions of small startups or to study emerging industries, Elias said Barr had requested these investigations “because he did not like the nature of their underlying business.”
Elias also said that 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.”
The purported execution of these investigations also suggests that Barr intended to pester cannabis companies rather than to learn about the industry or challenge a merger. Elias said that staff members had been instructed to forgo interviews with customers and competitors, which are typically required to collect information and identify witnesses for a merger challenge. He also said that staff members reviewed very few documents requested from cannabis companies; in one case, officials began the process of closing the investigation before the requested corporate documents had even been uploaded for staff to view.
Though the investigations were not as thorough, Elias said, the processes of requesting documents and conducting Second Requests absorbed DOJ employees’ capacity for antitrust enforcement. “At one point, the office handling agriculture became so overwhelmed with cannabis investigations that it had to pull in attorneys from the communications, media, and technology offices,” Elias said at his hearing.
The DOJ’s Office of Professional Responsibility (OPR) rejected Elias’ testimony, saying “it was reasonable for [the Antitrust Division] to seek additional information from the industry through its Second Request process.” However, 11 antitrust experts unanimously criticized the OPR’s letter and reasoning, in interviews by Just Security. Bill Baer, who led the Antitrust Division under former President Barack Obama, said the OPR memo was “neither persuasive nor conclusive.”
As more farmers and advocates critique decades of lax agricultural antitrust enforcement, this exceptional and targeted scrutiny of the cannabis industry raises serious concerns about DOJ’s enforcement priorities.
While the DOJ investigated cannabis mergers, the department permitted major deals between seed and agrichemical goliaths Bayer and Monsanto, and allowed the dominant cooperative Dairy Farmers of America to take over leading milk processor Dean Foods. Crop and dairy farmers have accused consolidated corporations in both industries of exacting abusive pricing power over seeds, agrichemicals, and the price of milk.
During the 2019 fiscal year, the DOJ also failed to issue Second Requests for consequential agricultural mergers such as National Beef’s takeover of independent packer Iowa Premium. The Ranchers and Cattleman’s Legal Action Fund even urged the DOJ to investigate this merger because of its potential influence on cattle prices.
Another former DOJ antitrust attorney, Peter Carstensen, told Food & Power that cannabis merger investigations may have also drawn attention away from the department’s investigations into agricultural collusion and market manipulation. The DOJ recently indicted poultry CEOs for price fixing – with potentially more charges to come – and opened an investigation into cattle market manipulation following a similar ongoing investigation by the Department of Agriculture (USDA).
These recent investigations are encouraging developments, but these federal probes still do not cover the breadth of allegations of anti-competitive conduct in the food sector. Since 2016, private firms have brought class action suits against every major protein industry, alleging price fixing or wage fixing that harmed consumers, farmers, or workers. “There’s a lot there that ought to be the subject of some real focus,” said Carstensen. “Spending more time on marijuana [investigations] takes staff away from doing not just merger [probes] but all kinds of competition issues in agriculture.”
Unfortunately, Carstensen noted, the Trump administration is far from the first to misdirect antitrust enforcement for personal or political reasons, as he mentioned instances of corrupted antitrust priorities – typically a lack of enforcement – dating back decades across administrations of both parties. To mitigate some of the corruption of antitrust enforcement, Carstensen added, the department needs more independent staff and stronger and clearer merger guidelines with explicit market share caps and presumptions of illegality.
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