A group of Illinois cannabis companies face an antitrust lawsuit alleging that they maintained illegal interlocking directorates. An interlocking directorate is where a person from one company serves as an officer or director at a competing company in violation of Section 8 of the Clayton Act. On April 18, 2022, a plaintiff named True Social Equity in Cannabis, an association of consumers, workers, and others in Illinois, filed a complaint in the Northern District of Illinois alleging that Akerna Corp., Green Thumb Industries Inc., ILDISP LLC, Verano Holdings Corp., and Surterra Holdings Inc. maintained illegal interlocking directorates (the “Illinois Complaint”).

In addition to the Illinois Complaint, the U.S. Department of Justice Antitrust Division (DOJ) announced in an April 2022 speech by Assistant Attorney General Jonathan Kanter that DOJ is “ramping up” efforts to enforce alleged violations of Section 8. Private litigation and government challenges to resolve alleged interlocks are rare, but DOJ and the Federal Trade Commission occasionally announce settlements based on investigations. In June 2021, DOJ announced that Endeavor Group executives were resigning from the Live Nation Board of Directors as part of a settlement of an alleged illegal interlocking directorate.

Section 8 of the Clayton Act prohibits a person from simultaneously “serv[ing] as a director or officer in any two corporations (other than banks, banking associations, and trust companies) that are [competitors].” 15 U.S.C. § 19. The prohibition only applies to corporations whose competitive sales are above a certain dollar threshold, and there are other exemptions that may apply.

Although the Illinois Complaint also contains vague and unsupported allegations of collusion, price-fixing (via information sharing), and monopolization of the legal Illinois marijuana market, no other antitrust violations besides the Section 8 claim are alleged. In addition, rather than requesting equitable relief to remedy the alleged interlock, the Illinois Complaint inexplicably seeks to prohibit the defendants from marketing, selling, licensing, distributing, and growing marijuana and a divestiture of all assets.

The Illinois Complaint and DOJ’s recent announcement should factor into a company’s selection of its board of directors and officers. Because the analysis of whether two companies compete and meet the requirements of Section 8 (or qualify for Section 8’s exemptions) is a complex and fact-specific inquiry, we recommend that you consult with antitrust counsel if you have any questions in this regard.