Investing in Cannabis Stocks Could be Trouble for Department of Defense Employees

Federal workers in defense and national security positions don’t just have to worry about keeping their urine free of banned substances. According to a recent statement from the Department of Defense, they also have to worry about keeping their investment portfolios free of cannabis stocks. The DoD says that investing in cannabis could lead to the loss of security clearances for service members, defense contractors and DoD civilians workers. Owning stock in a cannabis company can also block someone from gaining a security clearance in the future.

Federal Prohibition Threatens Security Clearances for Defense Dept. Workers Who Invest in Cannabis

The DoD Consolidated Adjudications Facility (DoDCAF) is the sole authority that can grant clearances for Defense Department employees. And their stated legal position is that ownership of cannabis stocks counts as involvement in drug-related activities. As such, investing in marijuana would qualify as a “reportable incident.” The DoD continuously monitors security clearances with an ongoing evaluation process. Reporting investments in cannabis could, therefore, lead to a revocation of security clearances or block attempts to gain one.

In short, the DoD is making a technical point. Since cannabis is illegal at the federal level, any connection to its commerce technically qualifies as a prohibited activity. Regardless of the state in which a defense employee resides, they work for the federal government and are subject to federal guidelines.

DoD Expects Employees to Monitor All Their Investment Activity for Cannabis Stocks

The legal cannabis industry encompasses more than just businesses that work directly with the plant. In fact, its operations rely on a number of businesses, from law firms to building contractors, that never touch the plant. So when it comes to investing, where does DoD draw the line between “involvement” in “drug-related” activities and permissible investing?

The question becomes more vexed as the industry moves onto major U.S. stock exchanges. Mutual funds are already staking some of their clients’ funds on cannabis companies or related businesses. They’re good investments. But according to the DoDCAF legal position, even indirect ownership of cannabis stocks through mutual fund investments could jeopardize employees’ clearances.

According to an Air Force Air Combat Command headquarters Facebook post, citing an email from DoDCAF, “even in cases where the subject him/herself isn’t directly choosing the stocks, he or she has the responsibility to stay informed and avoid violating the federal law.”

The Best Way to Protect Your Security Clearance is To Report Your Stocks and Divest

So DoD wants employees and contractors to take a hard, close look at their investments and even what their mutual funds are investing in. And if employees find something, the policy requires them to report it right away. But because “intentional or knowing” investment in cannabis stocks is much more likely to tank a security clearance, employees have been advised to divest their cannabis stock holdings the moment they become aware of them. In fact, Carol Thompson, a partner at The Federal Practice Group, said taking steps to divest would work in employees’ favor.

Of course, all of this is policy on paper. And it’s unclear to what extent DoDCAF is willing to probe all employees’ financials with such a fine-toothed comb. According to the Federal News Network, the DoD has a security clearance backlog of about 600,000. So cracking down on clearances over cannabis stocks may not be a top priority.