With the legalization of marijuana, marijuana-related stocks have become popular. The legal marijuana industry is expected to hit $25 billion by 2021, according to research firm ArcView. This means we should expect to see plenty more marijuana companies going public between now and then.
While many want to get in on the action by investing in marijuana-related stocks, is there a chance you can get into trouble with your employer? Meaning, does your employer have any say in what you can and can’t invest in? Can you ever be fired for investing in marijuana stocks?
You might be surprised to find out that in some industries, employers actually have a say in what employees can invest in. In this article, you’ll learn which industries this most commonly occurs in.
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When Does an Employer Restrict Your Investment Choices?
The financial services industry can apply restrictions to what their employees might invest in. This is due to conflicts of interest. For example, if the firm suggests that its clients invest in XYZ, it doesn’t want its employees jumping ahead of clients (called front-running) and buying XYZ so they can ride it up when clients begin buying. To prevent this, it’s not uncommon for firms to restrict employees from investing in anything the firm might recommend to clients.
How exactly the above works can get complex. For example, if a new-hire is holding client recommendations in their retirement account with a long-term bias, do they still need to close out their position? What if the employee is holding a position short-term and his cost basis is negative? Do they have to close out the position, creating a realized loss? Will the employer compensate them for the loss?
All the details for the above scenarios should be in any offer letter from the employer. If you are still wondering after reading the offer letter, additional details can be directed to the company’s HR or compliance department.
Government agencies may also have certain restrictions on what their employees can trade and invest in. One such agency is the SEC, as outlined in their archived document: Rules for Employee Investing.
The SEC follows similar rules as the financial services industry when it comes to investing or trading in related stocks. There are some differences though. SEC employees can’t invest in IPOs or stocks with special notes issued on them. They must sell any stock once they’re involved in an investigation of that stock.
You might think with so much non-public information on securities that SEC employees could make out like bandits. They actually do quite well but not because they are trying to invest in specific holdings they have information on. Instead, it’s because they avoid disasters.
If you work within the marijuana industry, there’s a small chance your employer might restrict you from investing in a competing marijuana company. Since most stocks need to be publicly-traded companies to trade their shares on an exchange, it’s likely the company you work for will need to be public before there’s any chance of restricting trading in a competitor.
Why would a company impose such a restriction? What does it matter to your employer if you invest or trade a competitor’s stock? One reason is that it can help the competitor.
As investors buy their stock, the share price can increase, which increases the competitor’s equity. More equity means the competitor can potentially raise more capital and get lower-cost loans. It can also mean executives get big bonuses because the stock price or other ratios are now hitting certain targets.
By restricting employees from trading in competitor stocks, employers believe they can deprive competitors of opportunity, even if by a minuscule amount.
On the flip side, employers may not restrict employees from what they can trade in their personal accounts. But instead, they may apply restrictions to their employer-sponsored retirement accounts. Many such accounts only allow mutual funds but some do allow specific stocks, which employers might restrict.
In some jobs, you may be required (either by law or by policy) to disclose what investments you are invested in. For example, many politicians have to file personal financial disclosures and not only reveal their investments, but also the value of these investments.
While the disclosure itself isn't the issue, it could potentially cause a problem if:
- Your employer has a problem with your marijuana stock investment
- You're a government employee in a state or location where marijuana is still illegal
- You're concerned about your image if you're a politician
Once again, these are all "potential" problems, but it's something to consider if you're required to disclose what you're investing in.
Most Employers Don't Restrict Investing in Specific Stocks
While it will be difficult to find an employer who restricts employees from investing in marijuana stocks based on principle or the legality of marijuana, there may be other reasons that might keep you from investing in marijuana stocks.
Besides any restrictions due to conflicts of interest, investing in competitor stocks may be a reason a company might restrict you from investing in marijuana stocks. Of course, that means you are likely working within the marijuana industry and at a publicly-traded company.
For the large majority of employees, they will never run across an employer that will restrict them from investing in marijuana stocks. Of course, you can always simply inquire of your employers if there are any restrictions on your personal investing. You don’t have to bring up marijuana stocks. If there are specific restrictions, they’ll be disclosed to you when you inquire.