July 16, 2024
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Mintz: Marijuana businesses face ethical concerns


Steven Mintz

By Steven Mintz

Did Californians make the right decision when 57 percent of the voters approved Proposition 64, which legalized using and growing marijuana for personal use? The so-called Adult Use of Marijuana Act will allow for the sale and taxation of recreational marijuana.

As Marissa Nall points out in her Oct. 27 article in the Business Times, each county will have to decide whether and how to allow cannabis businesses to operate. This means a myriad of rules may follow with some state and local authorities in the tri-county area issuing licenses and permits for the sale of legal recreational marijuana on Jan. 1, 2018 while others play the wait-and-see game.

Grover Beach jumped on the opportunity to allow the commercial sale of cannabis next year, including up to two medical marijuana dispensaries. The decision makes the city the first to welcome the potentially lucrative medical marijuana industry to the area, and it could establish Grover Beach as a center for the cannabis industry in San Luis Obispo County.

That also means San Luis Obispo residents who don’t have a medical marijuana card will need to travel to buy pot legally. In all likelihood, this will incentivize localities to permit marijuana sales so as not to lose out on tax revenue to neighboring cities.

There are many unanswered questions about marijuana use. 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 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.

Grover Beach plans to impose a tax at the rate of 5 percent of gross receipts on dispensaries, manufacturing, testing and other medical cannabis businesses and 10 percent 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.

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 has compassionate uses.

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 Oct. 25 indicating that 64 percent of Americans now say marijuana use should be made legal.

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 and sales and income taxes with cash.

To me, the cannabis business is a fraud waiting to happen.

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.

• Steven Mintz is a professor emeritus at Cal Poly San Luis Obispo.