Kristina Etter   |   July 30, 2020

Cannabis Industry Takes a Hit from DOJ

Personal biases in the DOJ prompt whistleblower complaint, dismissed by OPR.
Before becoming a freelance cannabis journalist, Kristina Etter spent 20 years in corporate IT with a niche in mobile technology. Today, she combines her love of technology with a passion for the cannabis industry as the Editorial Content…

In 2016, the cannabis industry, and those in it, quaked with fear as Jeff Sessions was sworn in as the new Attorney General under the Trump regime. With a staunch position against legal marijuana, Sessions felt like industry kryptonite at the time, and many cheered when the Alabama Republican lost his job.

But as the old saying goes, “Be careful what you wish for.”

On February 14th, 2019, William Barr was sworn into office as the new Attorney General, testifying before Congress on how he planned to follow the law as an impartial and unbiased representative. In fact, Senators Cory Booker and Kamila Harris both questioned Barr on his stance in regards to state laws on legal cannabis.

After Jeff Sessions rescinded the Cole Memo, Senator Booker specifically asked Barr during his confirmation testimony in Congress, “Do you believe it was the right decision to rescind the Cole Memorandum?”

Barr answered, “My approach to this would be not to upset settled expectations and the reliance interests that have arisen as a result of the Cole Memoranda, and investments have been made, and so there has been a reliance on it. So, I do not think it is appropriate to upset those interests.”

And he added, “I am not going to go after companies that have relied on the Cole Memoranda.”

The Truth

Recent events, however, seem to say something different than what Barr said in his testimony. A statement made by a DOJ whistleblower, John Elias, claims that 29% of the merger probes by the Antitrust Division directly targeted cannabis businesses.

In his testimony, Elias said, “Rejecting the analysis of career staff, Attorney General Barr ordered the Antitrust Division to issue Second Request subpoenas. The rationale for doing so centered not on an antitrust analysis, but because he did not like the nature of their underlying business.”

Elias stated that the Antitrust Division was told to look into ten mergers within the cannabis industry. Despite not finding any competitive concerns of interest, the ATR was instructed by the DOJ to make second requests and continue their investigations into the cannabis industry transactions.

Unfortunately, when presented with the facts, the Office of Professional Responsibility backed the decision by the ATR to seek additional information in these instances, even arguing that the action and on-going investigation “would not have violated any relevant laws, regulations, rules, policies, or guidelines.”

Unchecked Power

Many legal professionals disagree with this statement. Ausra Deluard, Counsel at Dentons and a member of the firm’s National Healthcare practice, commented on the process during an interview with Cannabis Tech. “One of the most disappointing factors is that the process was followed, but the OPR dismissed the whistleblower allegations and simply signed off on it, giving the government unbridled power to be able to issue second requests without any substantial evidence.”

She continued, “This isn’t just a problem for cannabis. This is a problem for any potential transaction across any industry. Unfettered power is a breeding ground for abuse.”

Mergers and acquisitions in any industry aren’t simple processes. Deluard explained the impact of second requests goes far beyond the surface level. The second requests from the ATR delayed transactions, which ultimately caused the loss of millions of dollars, some were repriced at a significant cut, and some failed outright. However, the tally of expenses also includes the cost of very stringent e-discovery protocols that require specialists, forensic data collection, and can cost more than a million dollars.

“What’s worse, is when an action is so insidious, and impacts the industry in such a way, but is so underhanded and, frankly, corrupt - it disrupts people’s faith in their government and their elected officials,” Deluard shared.

Nixon-ish

Knowing Barr’s confirmation testimony, combined with a litany of second requests to the cannabis industry, one can only ask, “Did Bill Barr commit perjury during his confirmation hearing?” And if so, what else is he capable of?

Having worked on second requests for over a decade in her role, Deluard believes the acts by AG Barr and the Department of Justice are “egregious and outrageous.”

Making the parallel to the Nixon era, in the 1960s, the DOJ issued civil investigative demands which were motivated by political biases, essentially harassing the recipients. Deluard stated, “It’s very similar to what we see today, and the similarities to what happened under the Nixon administration is frightening.”

“The agency’s ability to issue these requests and the demands they make of a company impact everyone, and there needs to be a practical, realistic mechanism in place to prevent this from happening,” she added.

On Tuesday, July 28th, the step to implementing those mechanisms with AG Barr testifying before the House Judiciary Committee regarding several accusations by Democrats. The inquiry remained focused on the handling of the pandemic, previous investigations, and current civil unrest in the US. Neither the cannabis industry's second requests nor the investigations into the California Emissions deal were brought to the discussion.

Shining a Light

While the current situation may seem dark and even hopeless, Deluard reminds us that the actions taken by the government are shining a light to reveal the gaps and problems.  She believes in the resilience and determination of the cannabis industry.

“The people in the cannabis industry are such fighters! They have been challenged, and they have met those challenges, continued to fight, continued to overcome,” she said optimistically.

She believes we must hold on to the perspective that this is clarifying where the problems lie. “You can’t fix the problems until you know what the problems are, and by shining a light on all the things that are broke, it allows us to rebuild the society we want,” she proclaimed.

However, she also reminds us that we need leaders who are going to be able to meet the challenges and create reform. “We need leaders who can lead us down a better path and rebuild. Support those who inspire you that way. Support the politicians who can get that done,” she encouraged.

Deluard emphasized, “If you don’t like [the politicians], find new ones! We have a community – let’s find the leadership that we need to make the necessary changes.”

 

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