The Can-Dos of Cannabis

Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans, and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security, and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Minnesota is representative of a common question on plan investments.

"Can a 401(k) plan invest in a cannabis company?"

Highlights of the discussion

In theory, yes, a 401(k) plan could invest in a cannabis company, but in practice, it is complicated and often restricted. There is no specific law that forbids a 401(k) plan from holding stock in a cannabis company. The Internal Revenue Code, the Employee Retirement Income Security Act of 1974 (ERISA), and their supporting regulations do not expressly prohibit cannabis-related investments in qualified retirement plans. However, the federal illegality of cannabis significantly complicates fiduciary compliance and provider acceptance. Therefore, retirement plans and their providers remain reluctant to embrace such investments.

Although many states have legalized it, “cannabis” remains illegal as a controlled substance under federal law (the Controlled Substances Act). And the definition of what is illegal is broadening to include previously excluded Hemp and many hemp-derived cannabinoid products, beginning in November of 2026, because of Public Law 119-37 (1) enacted at the end of 2025. Consequently, many 401(k) service providers (e.g., document providers, custodians, recordkeepers, brokers, RIAs, etc.) refuse to incorporate cannabis-related companies due to perceived risk or regulatory uncertainty. Furthermore, some financial institutions are concerned about anti-money laundering and suspicious activity reporting requirements under the Bank Secrecy Act.

Next, ERISA requires plan sponsors to follow the terms of the plan document and invest plan assets prudently in accordance with fiduciary standards. In most cases, the plan document defines/limits permissible investment options, and the plan sponsor must prudently select and monitor the investment menu. Most standard plans offer a menu of mutual funds and do not permit individual stocks, especially those of cannabis companies.

Investing in cannabis companies through a brokerage window (if offered) might be an option if the plan sponsor and provider allow it. If a plan did allow individual stocks or Exchange Traded Funds through a brokerage window, technically holding stock in a cannabis company could be possible. However, even if the option exists, plan sponsors or recordkeepers may block cannabis securities as too risky. Interestingly, certain large index funds that a 401(k) plan may offer may already include companies with cannabis exposure (e.g., tobacco companies that own cannabis stakes).

Conclusion

While not expressly prohibited by statute, the ability to directly invest in cannabis-related companies through a 401(k) plan is rare because of fiduciary, provider, and federal law concerns. Access is determined by what a specific plan allows and who administers it.

(1) Public Law 119-37, enacted November 12, 2025, is the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026