Tesla TSLA, -0.70% and SpaceX founder Elon Musk is reportedly having his security clearance reviewed after smoking marijuana during a podcast, but he’s far from the only person whose government security clearance is threatened by a cannabis connection.
Federal employees and contractors who simply own stocks in cannabis-related companies could have problems maintaining the security clearance required to do their jobs, experts told MarketWatch.
In one case, a Department of Defense employee who listed his marijuana-related investments on a financial disclosure form during an annual security clearance check-up was told to get rid of the shares, said Timothy Maimone, a union officer with American Federation of Government Employees Council 170.
“They basically wrote him a letter saying you’re violating the public trust by owning stock in this marijuana company,” Maimone told MarketWatch. “They gave him 30 days to fix the problem or we’ll pull your clearance.” The employee sold the shares and kept his clearance.
Using marijuana — which is illegal under federal law but legal in several states — is definitely a no-no under security clearance guidelines, which prohibit the unlawful use of controlled substances. But Maimone, whose union represents close to 9,000 Department of Defense employees worldwide, said it felt like higher-ups were “picking on” employees who are invested in marijuana-related stocks.
“Cannabis is not a problem in this country,” Maimone said. “We have more of a problem with substance abuse, yet they’re not going after people who own stock in companies that make opioids.” Employees in his union typically make about $80,000 a year, and the employee who ran afoul of clearance rules had a few hundred dollars invested in cannabis companies, he said.
The Pentagon is ‘researching’ the topic
Investing in cannabis-related companies kicked into high gear last year when Canada legalized recreational marijuana use, but the question of how it affects federal security clearances got renewed attention recently after a memo reportedly authored by DoD lawyers circulated on Facebook FB, +2.98% and Reddit.
The memo said that U.S. Air Force officials had “received numerous inquiries regarding the purchase of marijuana related stocks.” It went on to explain that the Pentagon “treats investments in marijuana-related companies as ‘involvement,’ [in drugs] which is prohibited.”
‘If you are purposely seeking out marijuana stocks and intentionally investing in what the federal government sees as an illegal drug, you run the risk of losing your clearance.’
It added, “Owning marijuana-related stocks is a reportable incident” and DoD authorities “will determine if the ‘involvement’ raises questions about the individual’s judgment, reliability, trustworthiness, and willingness to comply with laws, rules, and regulations, including federal laws.”
But a Department of Defense official who spoke on the condition of anonymity said the memo is just one attorney’s opinion, and does not represent the Pentagon’s official stance.
In fact, there is no set DoD policy on ownership of marijuana stocks, and recent news reports on the issue have “incorrectly cited” a policy change, a DoD spokeswoman told MarketWatch.
“While, currently, no official DoD guidance specific to financial involvement in marijuana exists, the Department continues to research the topic,” said spokeswoman Lt. Col. Audricia M. Harris. “Any changes will be addressed through normal policy update procedures.” She added that security clearance investigators use what’s called the “whole person concept” when deciding whether to grant clearance. In other words, there are a number of factors that influence the decision.
Investment in cannabis companies is booming
The questions come as the burgeoning cannabis industry is capturing the interest of investors who see an opportunity to get in on the ground floor of a potentially lucrative market. Shares in companies like, Aphria Inc. APHA, +5.52% Aurora Cannabis Inc. ACB, +1.46% Cronos Group Inc., Canopy Growth Cor CGC, +1.91% WEED, +1.54% GW Pharmaceuticals GWPH, -2.28% and Tilray Inc. TLRY, +8.68% have surged over the last year.
Meanwhile, the clash between state and federal laws has created unique legal questions. Canadian cannabis investors who visit the U.S. run the risk of a lifetime ban by border officials, and people who work at cannabis businesses in states where it’s legal were advised to seek lawyers after the Trump administration rescinded an Obama-era marijuana enforcement policy.
And Elon Musk, whose SpaceX does business with the federal government, has been under scrutiny since smoking marijuana during a podcast last fall, though initial reports that his security clearance was under review were later debunked. (SpaceX declined to comment on Bloomberg’s most recent report of a security review.)
An attorney specializing in security clearances tells clients to skip marijuana investments
Employees at the more than 30 federal agencies that require security clearances are similarly caught in the conflicting legal landscape. Anthony Kuhn, an attorney who represents people seeking security clearance, says even though there’s no formal Pentagon policy prohibiting marijuana investments, he would advise clients against it.
Ironically, he noted, anyone whose 401(k) includes an S&P 500 SPX, +1.05% index fund — including federal employees who save money in the government’s Thrift Savings Plan — is probably already invested indirectly in the industry. S&P company Altria MO, +1.24% the maker of Marlboro cigarettes, owns a major stake in cannabis company Cronos CRON, +1.08% for example. Kuhn doesn’t think owning index fund shares would represent much of a threat to someone’s security clearance.
But buying shares in individual cannabis companies is another matter. “If you are purposely seeking out marijuana stocks and intentionally investing in what the federal government sees as an illegal drug, you run the risk of losing your clearance,” said Kuhn, who chairs the national security practice group at law firm Tully Rinckey.
He represents people seeking clearance for jobs with a range of government agencies, either so they can work as full-time employees at places like the Federal Bureau of Investigation or Drug Enforcement Agency, or as subcontractors. As of 2015, some 4.3 million people in the U.S. had security clearance, according to a Congressional Research Service Report.
But other financial issues can be a bigger security hurdle
Bill Henderson, a Leesburg, Va.-based consultant at FEDCAS, a company that helps employees navigate the clearance process, said investing in cannabis companies probably doesn’t fall into the Pentagon’s definition of involvement in illegal drugs. In his view, that prohibition only applies to using, buying, selling, cultivating and trafficking in drugs — not investing in them.
In his experience, there’s another type of investment that’s much more likely to trip up security clearance applicants.“They’re not too enthusiastic about ownership of foreign stocks,” Henderson told MarketWatch. “In the last 10 years, foreign influence has become the second leading reason for clearance denial.”
And the No. 1 factor that stands in the way of obtaining security clearances? Financial issues including delinquent debt, failure to pay taxes, or gambling, said Henderson. People with unsound finances are considered security risks because they’re vulnerable to being tempted with payoffs from enemies of the U.S., he noted.
“Historically, money has been the No. 1 reason for Americans to betray their country,” Henderson said. “When we spy against other countries, they tend to be motivated by ideology. But we tend to motivated by money.”