Do the Benefits Exceed the Costs?

The use of marijuana has been increasing over the years as a result of additional states permitting it for medicinal purposes and, more recently, states are allowing it for recreational uses. As of 2024, 38 U.S. states have legalized the use of marijuana for medicinal purposes. Additionally, Washington, D.C., Puerto Rico, Guam, and the U.S. Virgin Islands also allow medical marijuana. As of 2024, 24 U.S. states have legalized the use of marijuana for recreational purposes. Additionally, Washington, D.C., and several U.S. territories, including Guam and the Northern Mariana Islands, have also legalized recreational marijuana.

Sanctuary Wellness Institute Survey

A survey by the Sanctuary Wellness Institute of 1,000 Americans 18 years and older found that nearly 3 in 4 (72%) have used marijuana at some point in their lives. Currently, 1 in 3 (32%) adults use marijuana, and of those, 89% use it monthly or more. From Gen Z to Baby Boomers, cannabis consumption among generations varies from how and why it’s used to even where they get it from.

According to the survey, perceptions surrounding marijuana are changing. As legal restrictions are easing across the U.S., people are thinking about the drug differently and this shift is not limited solely to younger generations. The results show the following:

• New survey data reveals that 94% of Americans think marijuana is more socially acceptable in 2024, and nearly half (48%) think marijuana is the new alcohol.
• Whether Americans use marijuana or not, 81% support the federal legalization of the drug.
• Gen Z and Millennials are most supportive of legalizing it while Baby Boomers are the least supportive across generations.
• Currently, 36% of Millennials use the drug followed by 34% of Gen X, 33% of Gen Z, and 22% of Baby Boomers.
• Of those who took the survey, 36% of cannabis users live in states where it’s not legal to use marijuana.

Americans are split across generations on their preferred way to use marijuana. Gen Z and Gen X are more likely to smoke it while Millennials and Baby Boomers prefer to consume edibles. When it comes to vaping, Millennials vape the most, followed by Gen X and Gen Z.

The generation using marijuana the most frequently is Gen X, with 89% using it weekly or more. While cannabis users mainly get the drug from adult-use dispensaries, the second most common way is from family and friends. Across all generations, Gen Z is most likely to use a dealer, with 27% choosing dealers over legal avenues.

Unanswered Questions

There are numerous unanswered questions about marijuana use, many of which I've previously blogged about -- both ethical and legal issues.  Should it be legal to consume marijuana for any or all reasons? Is it the right thing to do? Could it have negative effects on society? These are a few of the questions that should be addressed as the recreational use of marijuana spreads to more states.

In a previous blog I asked: 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. However, we need to address whether it will 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?

A Cash Only Business

Marijuana is largely a cash business because its sale is prohibited by federal law under the Controlled Substances Act. For a long time, we thought that 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.

Here in California where cannabis banking is legal, cannabis-related businesses (CRBs) across the state struggle to access much-needed financial services. Major financial institutions refuse to serve CRBs due to federal prohibition. Unable to open a bank account or file taxes electronically, running a CRB becomes a daily battle.

However, things are changing. Safe Harbor Financial was established in 2015 to end this divide. Beginning in Colorado, the bank expanded nationwide, supporting numerous CRBs across all sectors of the industry. They have processed $12 billion in cannabis-related funds, managed nearly 600 accounts, and operated in 20 states nationwide. The State allows cannabis banking to include checking and savings accounts, online banking, consumer payments, electronic tax payments, direct deposit payroll, and more.

Fraud in the Cannabis Business

Other issues include the importance of internal controls in an all-cash business. To me, the cannabis business is a fraud waiting to happen.

For example, on May 23, 2023, the U.S. Securities and Exchange Commission (SEC) obtained an emergency order to halt an alleged ongoing offering fraud and Ponzi-like scheme by Integrated National Resources Inc. (INR), which does business as WeedGenics, and its owners, Rolf Max Hirschmann and Patrick Earl Williams, who have raised more than $60 million from investors to expand their cannabis operations, but have instead used the majority of funds to make $16.2 million in Ponzi-like payments and to enrich themselves.

According to the complaint, since at least June 2019, Hirschmann and Williams have promised investors they would use raised funds to expand WeedGenics facilities, which they guaranteed would produce up to 36 percent returns, but in reality Hirschmann and Williams never owned or operated any facilities—it was all a sham. The complaint alleges that when Hirschmann and Williams received investors' funds, they transferred the money through multiple accounts to enrich others and for personal use such as entertainment, jewelry, luxury cars, and residential real estate. The complaint further alleges that in an attempt to avoid detection, Hirschmann, acting as the face of the company, used the fake name Max Bergmann the entire time he communicated with investors, while Williams, as Vice President of the company, worked behind the scenes while spending investor funds on his more public career as a rap musician known as “BigRigBaby.”

“Rolf Hirschmann and Patrick Williams allegedly had no real company, no product, and no business, yet despite this, they promised investors everything and then delivered nothing,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “This action demonstrates that, despite the defendants’ extensive efforts to avoid detection, the SEC has the ability to uncover fraud to protect investors.”

The court granted the SEC emergency relief against INR, Hirschmann, Williams, and several relief defendants, including a temporary restraining order, an order freezing their assets, and appointment of a temporary receiver over INR and the entity relief defendants.

The SEC’s complaint charged the defendants with violating the antifraud provisions of the securities laws and seeks permanent injunctions, conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and officer and director bars. The Weedgenics case was heard at the US District Court in the Central District of California (Southern Division). The case resulted in emergency relief to stop the flow of cash into the $60 million cannabis scam.

Conclusion

For cannabis businesses to operate legally, the government needs to establish the “rules of the road.” Congress has been missing in action with regard to the banking issue. It hasn’t addressed the possibility of crime, such as the actions discussed above. The time is right for Congress to conduct a comprehensive study of the constraints that should be placed on cannabis businesses and what to do about the fact that users can simply cross state lines and buy/use marijuana in a state that allows it for recreational purposes even though they may live in a state that does not.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on August 28, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.