On June 8, 2017, Clifford J. White III, director of the U.S. Trustee Program, proclaimed before a congressional subcommittee that “debtors with assets or income derived from marijuana may not proceed through the bankruptcy system.”
To read the full text of this article, please visit the Duane Morris LLP website.
Attend any of the conferences or trade shows springing up in the emerging legalized recreational and medical marijuana space, and one thing you’ll notice is an absence of racial diversity. Why?
There are a number of possible explanations for the comparatively low number of minorities participating in the space, including, high start-up costs and restricted access to capital, especially given the reluctance of commercial banks to enter the fray, and limited political ties in a highly politicized system. Those reasons alone could be creating barriers for minorities to enter the market as owners and investors. Continue reading “Racial Discrimination in the Legal Cannabis Space: New Industry, Same Old Story???”
To assert a federal antitrust claim, a plaintiff must have standing under Article III of the U.S. Constitution and must also have suffered an injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants acts unlawful. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). The Brunswick standard generally benefits consumers who have paid artificially high prices as a result of a defendant’s anticompetitive conduct, or a competitor of a defendant that abused its market power to compete unfairly.
The federal antitrust laws, including the Brunswick standard, are one of the many protections intended to keep competitors on an even playing field and striving to beat one another by offering the optimal combination of quality and price to consumers, and to protect consumers from overreaching and opportunistic manufacturers that use nefarious means to impose a price they would be otherwise unable to charge. These laws have been critical in shaping industries.
However, it may be that the federal antitrust laws are among the federal laws unavailable to cannabis industry participants, as the federal antitrust laws are limited to commerce “among the states,” i.e., interstate commerce. Because cannabis is still prohibited under the Controlled Substances Act, its legal manufacture and distribution is generally limited to intrastate activities. Thus, competition for legal cannabis is, by and large, necessarily intrastate. Fortunately, most states have antitrust laws that mirror federal antitrust laws, and borrow from the federal judicial precedent they have generated. However, as a general matter, the federal courts and federal judges are more experienced than the state courts in the complex economics underlying most antirust matters.
For the burgeoning cannabis industry, this may be yet another problem arising out of the federal prohibition of cannabis. It means that consumers of cannabis products, such as cannabis, vapes, edibles, and possibly ancillary flower-touching products, may not be protected from inflated prices resulting from anticompetitive conduct, such as price-fixing agreements or agreements to allocate markets, and competitors for those products may not be able to ensure a level playing field with the largest companies, allowing the powerful companies to take advantage of their position by inflating prices.
The bottom line is that as the cannabis industry continues its growth at breakneck speed, manufacturers of cannabis, cannabis-infused, and cannabis-related products, may be tempted to engage in the types of anticompetitive conduct the federal antitrust laws are best able to correct, with the help of experienced federal judges, and consumers of those products may unfortunately be exposed to artificially inflated price increases flowing from such conduct left unchecked. While not all cannabis manufacturers or cannabis-related products are limited to competing in a single state, the bulk are.
To this point, the role the federal antitrust laws (or state for that matter) can play in shaping the cannabis industry has not been tested. That day may be on the horizon, however, as some companies continue to grow into industry giants, while others struggle to compete. Cannabis space participants, especially the larger players, should be aware of the compliance measures taken in other industries to protect themselves from the possibility of antitrust claims brought by their competitors or consumers.
In a letter to U.S. Attorney General Sessions dated June 15, 2017, Pennsylvania Governor Tom Wolf strenuously objected to the possibility of the federal government attempting to curtail Pennsylvania’s medical marijuana program, which is scheduled to launch with the issuance of grower, processor and dispensary permits in the coming weeks. As Governor Wolf stated in the letter:
Your action to undo the protections of the Rohrbacher-Farr amendment, which prevents the use of federal funds to disrupt states’ efforts to implement “their own State laws that authorize the use, distribution, possession or cultivation of medical marijuana” is misguided… If you seek to further disrupt our ability to establish a legal way to deliver relief of medical marijuana to our citizens, I will ask the Attorney General of Pennsylvania to take legal action to protect our residents and state sovereignty.
Governor Wolf’s letter was in response to a letter that Sessions sent to Congress on May 1, 2017, regarding the Rohrbacher-Farr amendment, in which Sessions stated :
I believe it would be unwise for Congress to restrict the discretion of the Department to fund particular prosecutions, particularly in the midst of an historic drug epidemic and potentially long-term uptick in violent crime.
On May 5, 2017, President Trump extended the Rohrbacher-Farr amendment through September 30, 2017.
