Antitrust laws are a set of state and federal laws that prohibit business practices which impede competition on the theory that aggressive competition ultimately benefits the consumer. In other words, when businesses compete to sell something, the consumer wins, or so says the theory which underpins these laws anyway.
Antitrust issues are predominantly applied to mergers and acquisitions, i.e. when a larger company purchases or assumes a smaller company. Thankfully, many smaller sized farmers in the Emerald Triangle and Nevada County have been able to resist selling their companies to bigger conglomerates or shaving off majority ownership to venture capitalists. Thus, the antitrust issues relating to cannabis-related mergers and acquisitions are less pressing in California’s cannabis agriculture industry, though antitrust issues still show up in cannabis-related transactions, such as purchase agreements and sales-related business activity.
The biggest antitrust vulnerability in California cannabis agriculture is “price fixing,” or “an agreement among competitors that raises, lowers, or stabilizes prices or competitive terms.” In human terms, that means everyone has to determine their own prices without making any agreements with competitors.
Price fixing most often occurs “horizontally,” where two or more competitors agree to sell their product for a set price. I always cringe whenever I hear someone say, “we should all hold at $1000 this year!” because that statement is arguably an invitation to fix prices. While there are some exceptions to antitrust laws, the rule against horizontal price fixing is set in stone and is considered “per se” illegal.
Price fixing can also occur “vertically,” such as where a producer agrees with someone further up the supply chain to fix a price. For example, because of this prohibition, producers and resellers were not allowed to agree to a mandatory minimum price floor for sale of the product to the consumer; hence, we got the “manufacturer’s suggested retail price,” or “MSRP.” The rule prohibiting a mandatory minimum price floor was actually invalidated in 2007, meaning that a producer and reseller may agree to a price floor to the consumer if-and-only if the agreement would not be an unreasonable restraint on competition, which is determined on a case-by-case basis (READ: run it by your counsel).
As an aside, it is insane to me that under the U.S.’s scorched-earth version of capitalism, our rural producers cannot band together to set a minimum price that would allow a modicum of economic and environmental sustainability, but that is the nation we live in and those are the rules under which our businesses operate. Despite antitrust laws purporting to protect the consumer, they have unsurprisingly benefited large corporations who can use antitrust laws to keep agricultural producers from organizing to mandate living wages. I am hopeful that at some point in the future, there will be a watershed moment in this nation where ridiculous laws that harm rural communities will be mitigated or negated, such as the prohibition on price fixing among rural producers, but we are not at that moment yet. Please vote, support your local trade and policy organizations, and elect candidates who take these issues as seriously as we must. Until the rules are changed, they must be followed.