This month, the Alaska State Senate approved a bill that allows the state to request federal background checks for any marijuana license applicant. Since the state’s laws don’t allow anyone to hold a marijuana license that has been convicted of a felony in the last five years, Senate backers believe the bill is an important additional step in awarding licenses in the state.

If the bill passes the Alaska House and the Governor eventually signs it into law, Alaska won’t be the first state to require background checks for marijuana license applicants. However, requiring them doesn’t guarantee smooth sailing in the application process. In New York this month, it was discovered that two marijuana growers with criminal histories managed to obtain licenses despite having background checks.

As David Robinson of USA Today reports, records of the two growers’ criminal activities are missing from the grower’s company application. The company, Etain, hired the two growers as marijuana cultivation experts, and a lot of information about them, the value they brought to the company, and their experience was included in the 1,375 pages of application documents submitted by Etain.

According to Robinson’s article, Etain claims that all employees underwent background checks as required by state law, including the two growers (even though they were not company employees. Interestingly, Etain earned the fourth highest score of the original 43 companies that submitted applications to grow and sell marijuana in New York.

As the story of Etain shows, federal background checks aren’t a perfect science when it comes to marijuana license applications.

The Affect of Background Checks on Marijuana License Values

When thinking about how background checks affect marijuana license values, there are two distinct schools of thought: they increase the value or they decrease the value. Let’s look at each argument.

Increasing the Value of a Marijuana License

Federal background checks ensure that only serious, reputable growers and sellers are allowed to participate in the marijuana economy. For investors, a business run by people without criminal records is typically a safer investment than one run by individuals who have committed crimes in the past.

However, as we learned in the Etain story, even a background check process doesn’t ensure people with criminal records don’t get licenses or work or consult with companies with marijuana licenses. Whatever the employment relationship with Etain and the two growers was, they were heavily relied upon within the company’s application documents as expert growers whose additions to the company were integral to its success. Background checks didn’t keep them out though.

Decreasing the Value of Marijuana Licenses

Federal background checks add one more level of red tape that delays the licensing process and limits the market. Only certain people are granted access to the marijuana economy when these checks are required and patients have to wait to get the medicinal marijuana they need.

This happened in Hawaii in April of this year when marijuana licenses for dispensaries were delayed in Hawaii because the Hawaii Department of Health couldn’t set up a fingerprinting system or process background checks in a timely manner.

It could be argued that limiting the playing field also limits the growth potential of the businesses in it and the industry as a whole. This is a topic that Seattle City Attorney Pete Holmes discussed at the April Cannabis Science and Policy Summit in New York City. During a session about state legalization, he identified barriers to the industry, such as felony checks, as factors in what he referred to as “institutionalized racism” since minorities are disproportionately represented.

In other words, background checks decrease the value of marijuana licenses. But again, we saw with Etain that background checks don’t necessarily work.

The Bottom-Line

While it may seem that requiring federal background checks on marijuana license applicants should have some effect on marijuana license values, the story of Etain shows that might not be the case at all.

What do you think? Given that background checks are imperfect, do they affect the value of marijuana licenses? What if background checks did work perfectly? Would you change your answer? Leave a comment and share your thoughts.

Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.