Author: Molly Donovan
A new episode of the “If I Were You” podcast is here! You can listen to it here. Featuring Fox Rothschild partner Jayashree Mitra talking all about antitrust and cannabis.
This Episode Is About: Antitrust and Cannabis
Why: It’s a rapidly growing space ripe for antitrust disputes!
The Five Bullets: In-house lawyers, if I were you, I would educate your business team about the following antitrust hot spots in the cannabis industry…
- Trade associations and other opportunities for collusion. Don’t talk to competitors about competitively sensitive subjects like pricing, production levels, targeted profit levels, dividing markets, dividing customers, etc. In other industries, this has happened amongst salespeople, business planning people, and at the executive levels. Be particularly vigilant about this hot spot during times of crisis—that is often when competitors do not resist the urge to collude. Also important to keep in mind: trouble happens not just on the sales side but also on the procurement side. Procurement people should not talk to their fellow buyers about acceptable costs and other terms of dealing with suppliers.
- Data pooling and privacy. This is an emerging issue in antitrust in general, and the cannabis industry in particular is saddled with heavy regulations that often impose the obligation to collect and store large amounts of data, including personally identifiable information (PII) and other sensitive information. This means there is the strong temptation to leverage the data in strategic ways to gain market dominance. That can be problematic. Separately, don’t collude with competitors over privacy terms and conditions – there should be competition for those as well. And if you’re going to pool data in a trade association for informational purposes, look at the DOJ’s guidance about how to mitigate any risk.
- Competition for employees. As a general rule, do not reach naked agreements with third parties not to recruit, solicit, or hire each other’s employees. These agreements can be criminally prosecuted, and they don’t have to be with another cannabis company—any third-party with whom you compete for labor, including your suppliers and distributors, counts. Similarly, there should be no naked agreements with third-parties about the terms and conditions of employment. Finally, with all the high-tech employees in cannabis, you need to watch non-competes in employment agreements as well as non-competes that are collateral to legitimate collaborations with competitors, including mergers and acquisitions. Non-competes are safest when used only selectively when necessary and narrowly tailored on a case-by-case basis to meet a concrete procompetitive justification.
- Blocking someone out of the industry or getting blocked out of the industry. Third-party agreements not to deal with a business counterparty or competitor call for antitrust scrutiny. These can come in the form of exclusive dealing agreements—you buy only from me or I buy only from you—or cutting off a necessity of doing business—reaching agreements with third-parties that make it very difficult or impossible for a competitor to lease necessary real estate, for example. Offensively, if you’ve been cut off from a customer or supplier and you suspect collusion, you may have a good antitrust claim. You don’t necessarily have to litigate to get mileage out of it.
- Monopoly conduct. You do not have to be a goliath like Amazon or Google to be on the hook for unilateral conduct that’s designed to stifle competitors or competition. For one thing, monopoly power is defined, in part, by geography. So, if you are relatively small in terms of size or revenue, but you are the dominant cannabis company in a local market with no real competition, you could potentially be treated as a monopolist. Before doing something potentially anticompetitive like entering exclusive agreements or dictating who can or cannot join a local trade association, consult with antitrust lawyers.