Can Ethics Be Legislated in Accounting?
Why Sexual Harassment Training Doesn’t Work

Regulatory and Ethical Issues for the Cannabis Industry

Most Americans Support Legalization of Pot

Most Americans believe marijuana should be allowed for medical purposes, with a majority of the states passing such laws. However, only eight states and D.C. have passed laws permitting its use for recreational purposes. The numbers are likely to grow given the results of a Gallup Poll released on October 25, 2017, indicating that 64 percent of Americans now say marijuana use should be made legal.

There are numerous unanswered questions about marijuana use, many of which I've previously blogged about -- both ethical and legal issues.  In this blog I expand the areas of concern given an increasing number of states that are passing recreational pot laws.

Is commercial growth and taxation a good reason to allow for the cultivation and sale of marijuana? New jobs will, no doubt, spring up in localities that permit it. New businesses will be formed in the cannabis industry with increased tax revenues that could be used to enhance economic development and provide needed services to communities. But, will it lead to addiction and an increase in crime, and what might be the related mental health costs to deal with potentially negative effects of long-term use?

How about the taxation of sales from marijuana? California is one of the eight states and plans to impose a 15 percent gross receipts tax on retail sales, in addition to a flat $9.25 per ounce on flowers and $2.75 per ounce on leaves. That’s just state taxes.

One city close to me is Grover Beach, which plans to impose a tax at the rate of 5% of gross receipts on dispensaries, manufacturing, testing and other medical cannabis businesses and 10% of gross receipts on recreational cannabis businesses. The city imposes a tax of $25 per square foot for the first 5,000 square feet and $10 per additional square foot of cultivation space for cannabis cultivation and nursery businesses.

Marijuana is largely a cash business because its sale is prohibited by federal law under the Controlled Substances Act. No bank is likely to open an account for a cannabis business. This creates a whole new set of issues including whether entrepreneurs will declare the appropriate amount of taxable income and pay their fair share. Businesses will have to pay employees in cash, sales and income taxes. Other issues include the importance of internal controls in an all-cash business. To me, the cannabis business is a fraud waiting to happen.

While the regulation issues boggle the mind, so do the ethical concerns. Should a society sanction the cultivation and sale of a substance that some claim undermines or degrades an individual’s rational capacities? I’m talking about recreational use here not medical marijuana, which many believe have compassionate uses.  POT image

The jury is still out on the possible negative effects of long-term use of marijuana. It could be the best way to go is sit back and study how its use for recreational purposes affects society in terms of regulation and whether any harm comes to individuals from the long-term use of recreational marijuana. Perhaps cities like Grover Beach will become testing grounds for economic development and regulation of cannabis businesses in the state. 

What’s needed now is for the cannabis industry to step up to the plate and establish ethical standards for responsible behavior and self-regulation. It would provide legitimization to the commercial sale of marijuana and relieve some of the anxiety many feel about the possible harmful effects on society. Still, local and state governments must move quickly to regulate the industry. In truth, you can’t regulate ethics so a healthy set of laws is necessary if, for no other reason, to establish penalties for violating the law.

Blog posted by Steven Mintz, aka Ethics Sage, on October 31, 2017. Dr. Mintz is a Professor Emeritus from Cal Poly San Luis Obispo. Visit his website to sign up for his newsletter.

Dr. Mintz is a writer, speaker, ethics trainer, litigation consultant and expert witness on ethics issues. If you are interested in his services, please send an email to: [email protected].