Why Investing in a Marijuana Business Could Make Your Clearance Go Up in Smoke

For some of the “smokers and midnight tokers” among us, the burgeoning “legal” marijuana industry is leading to hazy visions of a different kind of green: cash.

Here in my home state of California, for example, the newly-formed Bureau of Cannabis Control is licensing recreational weed dispensaries at breathtaking speed. Marijuana purveyors are advertising their wares in not-so-subtle print and radio spots, no longer confined by the old wink-and-nod constraints of “medicinal use.” And, if you believe all the hype, at the end of every marijuana grow is a veritable pot of gold.

That’s all fine and well for those who work in private industry and don’t care about the fact that marijuana is still considered an illegal Schedule 1 drug under federal law. But for those whose day job is conditioned on maintaining a government-issued security clearance, the road to leafy riches is fraught with peril.

Drug Involvement, Not Just Drug Use, Is a Clearance Violation

Under the National Adjudicative Guidelines for Security Clearances, drug involvement – including cultivation, processing, manufacture, purchase, or distribution – is a potentially disqualifying condition. That’s right: there is no requirement that the individual actually partake in his or her own party.

Similarly, the Guidelines at sections “E” and “J” may disqualify from holding a security clearance those who exhibit poor judgment or engage in criminal activity; the federal government certainly considers the flagrant violations of its laws to implicate both categories of issues. As far as the feds are concerned, state efforts to legalize marijuana are irrelevant under constitutional principles of federalism.

Finally, because the federal government still considers marijuana-related business ventures to be illegal, the industry is prohibited from accessing traditional financial institutions like banks. This creates a real incentive to engage in additional illegal activity such as money laundering in order to pull profits out of the business – and trust me: the government knows this.

All of these factors – combined with the perception that those involved in marijuana business are probably also playing fast and loose with other laws – renders one’s chances of obtaining or maintaining a security clearance while actively involved with the marijuana industry slim to none.

Marijuana Mutual Funds?

“But wait!” some of you entrepreneurial souls might be thinking. What about investing in the marijuana industry as part of a broadly diversified mutual fund?

Good luck finding one. The closest thing I could find in my research were a small handful of marijuana ETF’s (exchange traded funds) that recently opened and have yet to pass real legal muster. (No, I don’t own any).  The more hands-off approach of a passive investment like an ETF may be a workaround here, but I wouldn’t count on it given that there is absolutely zero known precedent on the issue.

It is never a good thing to be the government’s test case.

This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.