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A Justice Department whistleblower testified that US Attorney General William Barr was motivated by his personal distaste for the cannabis industry when he launched multiple antitrust merger investigations into nearly a dozen cannabis deals last year.

John Elias, a career clerk with the DOJ, testified before the U.S. Justice Committee on June 24 that 10 antitrust department probes involving cannabis companies, which accounted for 29% of the antitrust department’s total merger investigations in 2019, were not good at Fide – Antitrust investigations as they did not meet standard internal requirements for processing a subpoena for the second application that the DOJ must submit to formally object to a merger.

Instead, Elias claimed Barr ordered the investigation because of his personal hostility towards the cannabis industry.

For Matt Karnes, founder of cannabis-focused consultancy GreenWave Advisors, the nationwide illegal status of cannabis, coupled with the fact that the industry is still in its infancy, should have prevented the DOJ from launching these antitrust investigations in the first place.

“It’s very nascent so it’s like beating up a toddler,” he said. “It doesn’t make sense in any way, shape or form. If it’s illegal, don’t look at it from an antitrust perspective if they are still saying that banking is not allowed … [and] Even if it were legal, it would be too early to look into something as it isn’t even nationwide yet. “

As any cannabis company navigating IRS code 280E will attest, companies engaged in state-legal cannabis programs are still subject to other applicable federal laws, such as: B. the laws on securities, employment, taxes and antitrust law, so Eric Berlin, Co-Co. Chairman of Dentons’ cannabis practice.

Although Berlin said it was perfectly normal for the DOJ to issue subpoenas for the second motion when legally justified, he still found the probes for the cannabis fusions surprising.

“The DOJ’s actions never made sense from a legal perspective, and claiming the DOJ needed information about a new industry, as they said, seemed an abuse of power at the time,” he said. “It wasn’t even a plausible excuse for me to know the industry back then. It was clear that there was no monopoly or competitive risk as the industry was and will remain fragmented and competitive. Indeed, we have confirmed these facts in Mr. Elias’ testimony. Even the DOJ viewed it as fragmented and competitive, and these investigations were motivated solely by Attorney General Barr’s personal view. “

Berlin was representing a party involved in a cannabis merger that was flagged for review by the DOJ, and at this point did not understand why the DOJ was issuing a subpoena to its client for the second application.

“I look back and it only confirmed my worst fears at the time,” he said. “The fact that it basically comes from the personal instinct of the nation’s highest legal officer is worrying.”

Fulfilling confirmatory motions is very onerous, Berlin added, and any party going through this process could spend hundreds of thousands of dollars, if not more than a million dollars, on the investigation and attorney fees involved.

“There is no question that these companies that were scrutinized and reviewed these deals had to spend money … and unnecessarily use resources,” Karnes said. “I also think that investors may have suffered to some extent because … some of these companies assumed these deals were going to close, included them in the revenue in their guidelines, and then when the deals were renewed … they weren’t. They haven’t been able to match their numbers so stock prices have suffered in some cases and I’m sure some investors have lost money. “

Many of the cannabis mergers examined had not closed because of these additional costs and time delays, and now not only did the companies involved have little or no recourse, but the DOJ’s actions had dramatically slowed M&A activity in the industry.

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“The DOJ’s measures have frightened other parties from mergers and takeovers,” said Berlin. “The amazing thing is that if those claims are true, Attorney General Barr basically got what he wanted, which has a chilling effect on the industry. There is no major recourse other than I hope these allegations now prevent the DOJ from making other false antitrust claims or allegations against other parties in the industry. … If it turns out that there is no effect on this type of activity, that chill may persist. “

“It just underscores the lack of coordination at the federal level,” Karnes added. “It was just a waste of time and it seems like a ploy to disrupt the growth of the industry. … And I don’t think there will be any other types of control. The whistle was blown. “

However, from a larger perspective, these allegations could have ramifications beyond the cannabis industry.

“The use of one’s own office for personal gain or to implement one’s personal point of view at the expense of sound government policy and the rule of law is the definition of corruption in government,” said Berlin.

The fact that Barr was targeting a particular industry is not only corrupt, it also raises questions about perjury.

“The attorney general testified under oath in his confirmation hearing before the US Senate that he would not … disrupt federal expectations because of the Cole Memorandum,” said Berlin. “There were people who trusted the federal government would not go into this area and he said, ‘I’m not going to find companies that rely on the Cole Memorandum,’ and that’s what he did.”

For Karnes, however, if the claims are correct, this could mean a more positive message for the cannabis industry, underscoring its resilience and possibly its inevitability.

“If [Barr] was so against pot like [former Attorney General Jeff] Sessions was up, and Sessions came out with that statement when he took office. Then why didn’t this guy do it? “Said Karnes. “I think that’s because he knows he can’t legally stop it. He can’t just come in and turn everything off. So what is he doing? He tries to crumble it in other ways, indirectly, to weaken it. To me, this is a net positive result for the industry as it really signals that it is going to be legal. If it weren’t for it, he’d turn it off. “