From 2017 to 2019 I had the distinct pleasure of serving as the Deputy Assistant Attorney General in the Antitrust Division of the Department of Justice under the leadership of Assistant Attorney General Makan Delrahim. As everyone in the antitrust world knows, one of the singular accomplishments that Makan Delrahim has achieved as AAG was a global framework on fundamental due process. For over two years, we labored to secure the commitment of competition agencies around the world to promote procedural fairness. In May 2019, the fruits of our labor exceeded our every expectations when the Framework on Competition Agency Procedures was adopted with over 70 signatories from competition agencies around the world. “Adopting the Framework on Competition Agency Procedures is a remarkable and historic achievement for antitrust enforcement,” said Delrahim in announcing the successful conclusion of the negotiations. “It sends a clear signal that competition agencies across the globe – despite differences in their structures and proceedings, as well as the legal systems in which they operate – are committed to procedural fairness.”
I know from personal experience that Delrahim is deeply committed to due process regardless of political persuasion. This helps explain why he described FDR’s Attorney General Robert Jackson as one of his “personal legal heroes,” and why he created the Robert H. Jackson Room at the Department of Justice because, as the Wall Street Journal reported, Jackson is “the rare figure whose reputation transcends partisanship” and “is venerated as the patron saint of the rule of law.” As Delrahim said in recent remarks, quoting Jackson’s famous speech on the Federal Prosecutor, “[a]ny prosecutor who risks his day-to-day professional name for fair dealing to build up statistics of success has a perverted sense of practical values, as well as defects of character.”
Having spent countless hours with Delrahim in promoting fundamental due process, it is disheartening in the extreme to witness the false attacks on his character and his commitment to due process by Obama Administration Assistant Attorney General Bill Baer and Baer’s former chief-of-staff, John Elias, whom Delrahim decided not to replace and adopted as his own chief-of-staff, a rare showing of non-partisanship. On June 24, Elias alleged that the Department of Justice improperly conducted merger analysis of the marijuana industry because of “personal dislike of the industry.” On the same day, Bill Baer went further in a Washington Post op-ed, arguing that “the whole affair reeks of an effort to use law enforcement to burden an industry [Attorney General] Barr dislikes.” Their speculation of personal animus as the driving force behind the investigations is in sharp contrast with the official position of the Department’s Office of Professional Responsibility, which concluded that the allegations were without merit.
Two days later, on June 26, Just Security published an article reporting that eleven antitrust experts were “alarmed” by these allegations. Assuming these allegations to be true, these antitrust experts expressed grave concern that “the DOJ leadership’s animus toward the cannabis industry motivated this unprecedented series of investigations,” that the investigations imposed “substantial burden on firms simply because of … personal animus,” that the investigations were “the politics of grudge and personal preference,” and that the “politically-motivated investigations … amount to harassment of innocent targets.” Unfortunately, none of these antitrust experts questioned the possible political motives behind the accusers, or, in my view, exercised appropriate professional discretion in a rush to express their outrage at the alleged lack of procedural fairness without waiting for Delrahim’s response.
Background: Obama and Trump Administration Policy
Before addressing the specific question of how the Antitrust Division investigated the proposed mergers in question, it is useful to provide some historical context of how the Department of Justice has viewed the marijuana industry. This history belies the allegation that federal enforcement policy against the sale and distribution of marijuana is based on the personal animus of particular DOJ officials.
Given the changing public attitudes about marijuana use, it may be difficult for many to appreciate the federal government’s official positions on the distribution and sale of marijuana. As states increasingly moved toward the legalization of marijuana use, the Department of Justice has clarified its guidance on federal investigations and prosecutions.
In October 2009, the Obama Administration reiterated that “marijuana is a dangerous drug, and the illegal distribution and sale of marijuana is a serious crime.” The Obama DOJ announced that it is “committed to the enforcement of the Controlled Substances Act in all States,” particularly given that “marijuana distribution in the United States remains the single largest source of revenue for the Mexican cartels.” Among the enforcement priorities the Obama DOJ announced was the “prosecution of commercial enterprises that unlawfully market and sell marijuana for profit.”
In June 2011 the Obama Administration provided additional guidance in response to states authorizing “multiple, large-scale, privately-operated industrial marijuana cultivation centers” with “revenue projections of millions of dollars based on the planned cultivation of tens of thousands of cannabis plants.” The Obama DOJ warned that “persons who are in the business of cultivating, selling or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the Controlled Substances Act, regardless of state law.” The Obama DOJ also warned “[t]hose who engage in transactions involving the proceeds of such activity may also be in violation of federal money laundering statutes and other federal financial laws.”
In August 2013 the Obama Administration provided still more guidance, stating that it will rely on state and local enforcement to address marijuana activities that do not implicate certain federal policies. However, it reiterated that “state or local laws” do not provide a “legal defense to a violation of federal law” and “evidence that particular conduct threatens federal priorities will subject that person or entity to federal enforcement action, based on the circumstances.” The Obama DOJ emphasized that “a marijuana operation’s large scale or for-profit nature may be a relevant consideration for assessing the extent to which it undermines a particular federal enforcement priority,” including priorities such as “preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels,” and “preventing the diversion of marijuana from states where it is legal under state law in some form to other states.”
Finally, in January 2018, Attorney General Jeff Sessions announced that “[g]iven the Department’s well-established general principles, previous nationwide guidance specific to marijuana enforcement is unnecessary and is rescinded, effectively immediately.” This had the effect of returning “local control to federal prosecutors who know where and how to deploy Justice Department resources most effectively.”
Thus, far from “personal dislike or animus” toward the industry, these pronouncements provide useful context on the federal government’s official positions on the sale and distribution of marijuana in the United States. They also provide crucial insight on how the federal government might respond to efforts by marijuana companies to merge in order to more effectively sell and distribute marijuana in potential violation of federal law and federal priorities.
The Turn to Antitrust Investigations
Thus we come to issue of the merger notifications by the marijuana companies. Typically, the DOJ makes a decision to issue a Second Request based on the information provided by the parties, but the merging parties were understandably reluctant to provide the necessary information in their merger notification if doing so would implicate them in criminal conduct. As Delrahim notes in his detailed letter, “[g]rowing, marketing, or distributing cannabis remains a federal crime punishable by up to five years in prison and fines up to $1 million…. This prohibition applies even to cannabis that is grown, marketed, and distributed solely within a single state.” Anyone familiar with the merger notification process appreciates the fact that information that merging parties provide to the Department of Justice may implicate them in criminal conduct, including tax fraud, securities violations, or criminal price fixing. Given that both the Obama and Trump Administrations made clear that the mass commercialization of the sale and distribution of marijuana could implicate companies in criminal violations under the Controlled Substances Act, it is not surprising that the Antitrust Division would seek guidance on the critical questions of the constitutional laws and obligations as they relate to possible admissions of criminal conduct by these companies merely with the required submission of merger applications.
The first marijuana merger notification was filed on January 11, 2019. Both the DOJ and the Federal Trade Commission had an interest in reviewing the transaction. The matter was ultimately cleared to the DOJ, but not before precious time was consumed in the thirty-day window to decide whether to issue a Second Request.
Once cleared to the DOJ, Delrahim faced a legal conundrum that was a matter of first impression in the history of the Department of Justice. As he explained in his letter, “the Division was forced to consider whether the antitrust laws could or should be applied to protect and promote lower prices and increased output of a substance that is facially illegal under federal law.” This question is completely ignored by the so-called whistleblower and his supporters. What role, if any, should the Antitrust Division play when companies engaging in facially criminal conduct seek to merge in order to more efficiently engage in that criminal conduct? Assessing the relationship between these two competing statutory regimes is a difficult legal issue, and one wonders how any Antitrust Assistant Attorneys General in any Republican or Democratic administration would answer this question. Ultimately Delrahim determined that his role was limited to applying the traditional legal standard under the Clayton Act, namely, to analyze whether the proposed transactions in that industry may substantially lessen competition. Every question in the Second Requests to the merging parties was focused on that legal issue.
The proposed mergers did not simply raise difficult legal issues, they also raised novel factual issues. The Antitrust Division had never analyzed the marijuana industry before, and, as Delrahim explained, it was forced “to build out an understanding of the industry from scratch…. The Division’s lack of experience with the cannabis industry exacerbated the time pressure that agency staff already experience in an early stage merger review.” Much of this factual analysis is not simply about relative market shares, but also the complicated patchwork of state-specific regulatory regimes.
It is undisputed that the proposed mergers raised difficult questions that had never been considered before in the history of the Department of Justice. Issuing Second Requests provided the Division with the necessary additional time to reach the correct result in addressing the competitive aspects of an industry that is of great national consequence and that will only continue to grow in importance. Delrahim took the time to address these questions correctly.
Following the issuance of the Second Requests, the Division did its job, and most importantly, it never sued to block a single marijuana merger and did not refer the information to the Criminal Division or the DEA for prosecution under the Controlled Substances Act. The investigations focused solely on the competitive implications. Assuming a Democratic administration is faced with future marijuana mergers, will there be a similar rush to assume the worst about their motives in reviewing them? In this election season, Messrs. Elias and Baer somehow concluded, falsely, that personal animus by those from a different political persuasion was the reason behind the DOJ’s behavior.
Bill Baer concluded his Washington Post op-ed with the lament that “[a]ntitrust enforcement has been pretty nonpartisan and merits-based… [u]ntil now.” He may have forgotten those who accused him of caving to politics when he did a U-Turn and abandoned his challenge of the American Airlines-US Airways merger not that long ago. One wonders precisely who is attempting to change that reality, Makan Delrahim, or his accusers?
Image: Chip Somodevilla/Getty Images