Will the Biden Administration’s Increased Antitrust Scrutiny Impact Cannabis M&A?
Endeavor Moore Media | Adobe Stock

Will the Biden Administration’s Increased Antitrust Scrutiny Impact Cannabis M&A?

Matt Karnes, founder of cannabis-focused advisory firm GreenWave Advisors, says the risk is low under Attorney General Merrick Garland.

February 9, 2022

In 2019, the U.S. Department of Justice (DOJ), led by former Attorney General William Barr, launched 10 Antitrust Division probes that involved cannabis companies, accounting for 29% of the total merger investigations that year.

In 2020, a DOJ whistleblower testified before the U.S. House Committee on the Judiciary that these investigations were not bona fide antitrust investigations, as they did not meet the standard internal requirements for proceeding with a Second Request subpoena, which the DOJ must file to formally object to a merger.

Instead, John Elias, a career employee at the DOJ, alleged that Barr was motivated by his personal dislike of the cannabis industry when he launched the antitrust investigations.

RELATED: Whistleblower Alleges that U.S. Attorney General William Barr Launched Unfounded Antitrust Investigations into Cannabis Mergers

Now, as reports surface that President Joe Biden’s administration will pay more attention to antitrust concerns, particularly in the tech and media spaces, some cannabis industry stakeholders may be wondering whether the increased scrutiny will again land on their operations.

While Matt Karnes, founder of cannabis-focused advisory firm GreenWave Advisors, says it would not surprise him if the Biden administration’s increased attention to antitrust issues impacts the cannabis space in some way, he said it is unlikely that Attorney General Merrick Garland would target the industry in any antitrust investigations.

“It’s something that also was raised in the past, under the Trump administration, and I think that was really more of a result of Attorney General Barr taking a passive-aggressive approach to try to weaken the cannabis industry through these antitrust reviews,” Karnes tells Cannabis Business Times. “It was just really nonsensical to conduct these reviews on an industry that’s in its infancy stage and it's federally illegal. … If the Department of Justice were to get involved and it’s federally illegal, then shut it down.”

RELATED: Federal HSR Reviews Slow Down Big Cannabis Acquisition Deals

Since shutting down state-legal cannabis programs was not an option, Karnes speculates that Barr’s only tactic to interfere with the industry was to exercise his authority over the DOJ to slow down M&A activity—and therefore growth—in the space.

“I think the whole intent behind what Barr did was he wanted the cannabis companies to incur added cost and time, and cannabis companies are particularly vulnerable to added cost,” Karnes says. “No company wants to spend money that’s not necessary, but for a cannabis company, it’s really very difficult because you’re not able to take the tax deductions [for] the legal costs and all that. And also, capital is very scarce, generally speaking, in the cannabis industry.”

Karnes says Biden’s increased attention to antitrust concerns in the tech and media spaces could stem from his general opposition to big business, but he does not believe cannabis companies have anything to worry about, especially given that Garland has been a more cannabis-friendly attorney general.

“Attorney General Barr had come out and said he was against cannabis legalization and there was no way that he could shut it down,” Karnes says. “If he could, he would have. So, the only power he could have exercised was to direct these investigations or reviews. The attorney general today is more cannabis-friendly, so I don’t think he’s going to direct any effort toward any of these cannabis mergers. It just doesn’t seem like he would because it’s federally illegal and the industry is still in its infancy stage. He doesn’t have any ulterior motive. It seems he wants the cannabis industry to flourish because he would’ve said something different by now or acted in a different way.”

As long as the tension exists between federal and state cannabis policies, Karnes says companies should continue to perform their due diligence when considering a merger or acquisition, but for the most part, cannabis businesses should be safe from antitrust reviews under Garland.

“I think it’s actually more favorable now than it was under Trump because of Barr,” he says.