Case Study

Case 4 Legalizing Marijuana in the United States

AUTHOR BIOGRAPHIES

Asbjorn Osland, PhD, is a professor at San Jose State University. He teaches management and international business.

Nanette Clinch, JD, PhD is an instructor at San Jose State University. She teaches the legal environment of business.

CASE OVERVIEW

The legalization of marijuana in more than half the states has created a legal and ethical dilemma because marijuana remains a “controlled substance” banned under U.S. federal law. Legalization advocates argue that the resources used to arrest, prosecute, and imprison marijuana users could better be allocated for other purposes. Lack of legal status within the federally controlled banking industry creates a security risk for legal marijuana facilities by forcing them to handle large amounts of cash. Proponents of medical marijuana advocate compassion in allowing patients to use it, yet the lack of U.S. Food and Drug Administration (FDA)–supervised research leaves many questions about its medical efficacy unanswered. Recreational marijuana is controversial regarding smoking it in public, growing it at home, driving under the influence, legal age for purchase and possession, workplace drug testing, and more. A “states’ rights” showdown between the federal government and proponents of legalized marijuana looms—a legal conflict that will likely have to be addressed by the U.S. Supreme Court.

This case covers the following topics: a brief history of marijuana’s legal/criminal status; medical marijuana, including an example in San Jose, California; recreational marijuana, including an assessment of Colorado’s experience; the ethics of the War on Drugs; and a legal discussion of states’ rights versus the federal government’s jurisdiction.

MARIJUANA’S SEESAW LEGAL HISTORY

Marijuana (botanical name cannabis sativa), also known as hemp, is a plant that contains psychoactive chemical compounds (cannabinoids, including THC and CBD). Dried preparations of the plant and extracts (e.g., the resin product known as hashish) are commonly consumed by smoking, vaporizing, and oral ingestion. In the United States, marijuana was grown, sold, and used without restrictions until the early 20th century when, perhaps inspired by the anti-alcohol temperance movement, several states enacted laws banning it.1 Although marijuana continued to be grown commercially in parts of the country, a public relations campaign characterized marijuana as a dangerous drug that “caused insanity” and “pushed people toward horrendous acts of criminality.”2 By 1937, about 30 states had outlawed marijuana and the first federal legislation restricting its sale was enacted.3 Public disapproval continued to mount so that in 1952 mandatory sentencing for marijuana possession was instituted nationwide.

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The Controlled Substances Act (CSA) of 1970 listed marijuana as a Schedule 1 drug—one with “no valid medical uses and a high potential for abuse”4—and in a speech the following year, President Richard Nixon declared a “War on Drugs.” Nixon appointed the National Commission on Marihuana [sic] and Drug Abuse to find ways to “win” that war. The commission recommended decriminalizing marijuana, but policymakers ignored the finding and continued to characterize marijuana as a “gateway drug” that led to more serious addictions.5

Nevertheless, in the 1970s several states decriminalized the drug, making possession of small quantities of marijuana a misdemeanor subject to a relatively modest fine. Research into its medical properties was attempted in New Mexico, and the University of Mississippi was federally designated to grow marijuana for medical purposes.6 In 1976, Jimmy Carter’s presidential campaign included a proposal to decriminalize marijuana nationwide.

This trend toward leniency came to a halt in the 1980s when First Lady Nancy Reagan launched a “Just Say No” public relations campaign and promoted the Drug Abuse Resistance Education (DARE) program. The Anti-Drug Abuse Act of 1986 called for mandatory sentencing. According to the Drug Policy Alliance, “In 1985, the proportion of Americans polled who saw drug abuse as the nation’s ‘number one problem’ was just 2 to 6 percent. The figure grew through the remainder of the 1980s until, in September 1989, it reached a remarkable 64 percent—one of the most intense fixations by the American public on any issue in polling history.”7

In the 1990s, many states enacted “three strikes” antidrug laws that could put a repeat offender behind bars for 20 years or more. As the implementation of harsh sentencing laws continued, nonviolent drug law offenses resulted in incarceration rates that jumped from 50,000 in 1980 to over 400,000 by 1997. All succeeding presidents continued with the War on Drugs—including Bill Clinton and Barack Obama, who both admitted having smoked marijuana in their student days.8 The ACLU reported that 52 percent of national drug arrests in 2010 were for marijuana and 88 percent of the 8.2 million marijuana arrests (2001–2010) were for possession. A significant racial disparity was also clear: Blacks and Whites used marijuana at comparable rates, yet Blacks were 3.73 times as likely to be arrested for possession.9 From a historical perspective, marijuana’s image as a dangerous drug that deserves to be illegal can be seen as a consequence of cultural discrimination because it was associated with both crime and with Black and Latino migrant workers in the early 20th century.10 From a social benefit viewpoint, analysts assert that the more than $3.5 trillion spent annually on enforcement of marijuana laws could be better used for other purposes.11

In 1996, California enacted a state law allowing the sale and use of marijuana for medical purposes, and several other states soon followed suit. Thus, the United States entered into a legal and ethical paradox that pitted federal anti-marijuana regulations against state laws allowing the sale of medical marijuana. That paradox has become increasingly sharp as more and more states have voted not just to decriminalize marijuana, but to make it legal for medical and recreational use. By 2017, 29 states allowed medical use, and 8 states and the District of Columbia also allowed recreational use (see Figure 1).12 Legalization measures slated to take effect in 2018 were passed in several more states in the 2016 elections.

MEDICAL MARIJUANA: COMPASSIONATE CARE OR RISKY CHOICE?

Throughout history, societies in Asia, Europe, and the Americas used marijuana to treat various ailments, as well as to induce a euphoric or “high” mental state. In the 1890s, the government of India reported its use for a long list of conditions, including “relief of anxiety, . . . alleviation of hunger and as an aid to concentration of attention.”13 During the 1930s in the United States, major pharmaceutical manufacturers marketed cannabis-based drugs for “use as an analgesic, an antispasmodic and sedative,” and the American Medical Association expressed support for research into the drug’s medical value.14 As mentioned previously, two states finally did initiate marijuana research in the 1970s, though this was short-lived. The University of Mississippi was designated as a secure location to produce marijuana and provide it to certain patients under the Compassionate Investigational New Drug Program (CINDP). Although enrollment of new patients in the CINDP was closed in 1992, a handful of individuals still alive continue to receive government-provided marijuana cigarettes.15

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What do we know about marijuana’s medicinal properties? As with any other drug, we cannot rely on anecdotal or correlational evidence; instead, controlled studies are needed to draw conclusions. Marijuana research at the federal level requires the collaboration of the Food and Drug Administration (FDA), the Drug Enforcement Agency, and the National Institute on Drug Abuse (NIDA)—something that has been difficult to achieve.16 In the meantime, a number of controlled studies—many using the double-blind design—have been conducted in the past 20 years in states that allow medical marijuana, Canada, Europe, and elsewhere. Such studies usually evaluate marijuana’s effect on a single disease, condition, or symptom. Many of these studies have found beneficial effects, most significantly for relieving symptoms of chronic pain (including pain and appetite loss in HIV/AIDS patients), multiple sclerosis, Parkinson’s disease, bipolar disorder, and Tourette’s syndrome.17 A report by the Institute of Medicine examining research studies concluded that cannabinoids can provide pain relief, control of nausea and vomiting, and appetite stimulation.18 Talent Biotechs Ltd., an Israeli firm, has reported progress in developing a cannabis-based drug to prevent and treat a life-threatening condition called graft-versus-host disease that sometimes follows a bone marrow transplant.19

FIGURE 1  MAP OF MARIJUANA LEGALIZATION IN THE UNITED STATES, 2017

Source: Reprinted with permission from e.Republic, Inc.

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In 2016, the American Academy of Pediatrics, in a significant switch from its 2004 policy report characterizing marijuana as dangerous for children, stated that children with certain medical conditions could benefit from the drug.20 Marijuana promoters continue to attribute a broad range of medical properties to the drug (see Figure 2).

The NIDA, however, emphasizes the potential harmful effects of the drug. NIDA notes, “When people begin using marijuana as teenagers, the drug may reduce thinking, memory, and learning functions and affect how the brain builds connections between the areas necessary for these functions. Marijuana’s effects on these abilities may last a long time or even be permanent.”21 Similarly, the FDA notes that it “has not approved marijuana as a safe and effective drug for any indication.”22 Nonetheless, the FDA has approved drugs with active ingredients derived from cannabinoids, whether natural or synthetic. These are marketed under brand names including Cesamet, Epidiolex, Marinol, Sativex, and Syndros.23

MEDICAL MARIJUANA IN SAN JOSE, CALIFORNIA

In 1996, after California voters passed the Compassionate Use Act (Proposition 215), medical marijuana facilities opened in several northern California locations, including the city of San Jose.24 However, the vagueness of the regulatory environment subjected medical marijuana businesses to the risk of federal criminal prosecution. Furthermore, there were considerable operational problems: Marijuana collectives could not use the full banking services available to other businesses and could not deduct their business expenses on federal tax returns.

In 1998, a marijuana collective in San Jose called the Santa Clara County Medical Cannabis Center (Cannabis Center) was raided by local police because a member had been arrested for marijuana possession even though the arrested party had a medical condition that warranted the use of medical marijuana. About 6 months later, the police served a warrant to review 270 confidential medical records at the Cannabis Center. The police also seized the Cannabis Center’s bank account, which held around $29,000, and charged the manager with seven felonies. The charges were later reduced to a single misdemeanor with no jail time and a fine of $100, but the confiscated funds were never returned. Other marijuana businesses were also raided and seized assets not returned.25

Although California’s Medical Cannabis Regulation and Safety Act of 2016 helped to codify the implementation and issuance of licenses,26 many legal questions remained unresolved because the federal government continued to classify marijuana as an illegal drug. Many local police departments held the view that Proposition 215 could be overridden by federal law.

RECREATIONAL MARIJUANA: HARMLESS HIGH OR HIGH RISK?

By 2017, Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington, and the District of Columbia had all legalized marijuana use for recreational purposes.27 California was poised to become a huge market once the regulatory framework could be put in place for retail sales. According to California’s Proposition 64, police cannot arrest someone for possessing up to an ounce of marijuana, but they can arrest the person for buying it without a medical marijuana card. It would be a federal offense to buy marijuana in another state and transport it to California. However, a California resident can grow up to six plants.28 When the measure was passed, Colorado Governor John Hickenlooper cautioned California to regulate edible marijuana to ensure that children do not get intoxicated. He also warned of the risks of driving under the influence.29

One of the principal problems that legal marijuana businesses have encountered is cash management. Because marijuana continues to be illegal at the federal level, financial institutions that rely on the Federal Deposit Insurance Corporation (FDIC) are reluctant to serve the cannabis industry. This state of affairs also means that marijuana businesses cannot borrow money and are forced to handle large amounts of cash. Even taxes are paid in cash. Should marijuana companies fail to disclose their business and engage in subterfuge, they could be accused of violating federal money laundering or drug trafficking laws.30 In some jurisdictions, marijuana-related businesses use some credit unions and local banks on a limited basis, such as processing payroll checks and sending tax receipts to the state, although they still run the risk of violating federal laws. Vermont’s largest credit union, for example, permits marijuana businesses limited access to depository accounts that are FDIC insured. Washington and Oregon use PayQwick to transfer funds electronically.31

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FIGURE 2  CANNABINOIDS AND THEIR MEDICAL APPLICATIONS

Source: © 2014 Leafly Holdings, Inc. Retrieved from https://www.leafly.com/news/cannabis-101/cannabinoids-101-what-makes-cannabis-medicine.

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Federal officials during President Barack Obama’s administration tended not to prosecute financial institutions that were vigilant about their customers relative to criminal activity. After President Donald Trump’s Attorney General Jeff Sessions took office in 2017, Sessions hinted that he might like to see the Department of Justice tighten its enforcement of federal laws in the case of recreational marijuana.32

COLORADO’S EXPERIENCE

As the first state to legalize recreational marijuana (2012; medical use was approved in 2000), Colorado provides a noteworthy example of the effects of legalization. According to the Colorado Department of Revenue, recreational and medical marijuana sales totaled $1.3 billion in 2016. Proceeds from the 15 percent tax on sales are to go to public education. An additional 10 percent tax on retail sales and another 2.9 percent in sales tax go into the state’s general fund. These revenues are offset by increased costs in public safety, including the policing of a still-flourishing criminal black market. Neighboring states such as Nebraska have reported increased police costs with marijuana arrests.33

The impact of legalized recreational marijuana in Colorado has been positive in consumer response, but otherwise generally negative. In view of data published in the Rocky Mountain High Intensity Drug Trafficking Area report of 2016, it is reasonable to ask what the net benefit is of legalized recreational marijuana. Consider,

•    Three-year average (2013–2015) for marijuana-related traffic deaths compared with pre-legalization 3-year average (2010–2012): up 48 percent.

•    Youth use of marijuana in past month 2-year average (2013–2014) compared with pre-legalization 2-year average (2011–2012): up 20 percent. Youth past-month use nationwide for same period: down 4 percent.

•    College-age adult use of marijuana in past month (2013–2014): #1 rank in the nation; compared with 2011–2012 pre-legalization ranking: #3; 2005–2006 ranking: #8.

•    Adult use in past month (2013–2014) compared with pre-legalization (2011–2012): up 62 percent.

•    Emergency room visits likely associated with marijuana (2013–2014) compared with pre-legalization (2011–2012): up 49 percent.

•    Hospitalizations resulting from marijuana in 2011 (pre-legalization): 6,305; compared with 11,439 in 2014.

•    Highway patrol interdiction seizures of Colorado marijuana pre-legalization (2009): 53. After medical legalization (2012): 242. After recreational legalization (2015): 394.

•    Retail marijuana stores in Colorado in 2016: 424. Starbucks stores: 322. McDonalds restaurants: 302.34

LEGAL ARGUMENTS CENTER ON THE APPROPRIATE ROLE OF GOVERNMENT

Congress has the exclusive power to regulate products in interstate commerce, thanks to the enumerated power to regulate interstate commerce found in the Commerce Clause in the U.S. Constitution, Article I, section 8. One of the primary goals of this clause is to deter discrimination among states.35

The Tenth Amendment to the U.S. Constitution specifies, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” 36 In practical terms, states that still prohibit marijuana could have greater enforcement costs in areas contiguous to states where it is legal—and this is in fact happening in states bordering on Colorado, resulting in a lawsuit brought by Nebraska and Oklahoma in which the plaintiffs sought enforcement of the CSA in Colorado. The U.S. Supreme Court, which according to the Constitution is the only court with jurisdiction in suits between states, denied the request for a trial, leaving the plaintiffs without any legal means to challenge the Colorado policy.37 Although the CSA makes marijuana illegal, state laws prohibiting possession of marijuana remain a major source of enforcement.38 Legal analysts have suggested that states frustrated with federal agendas might withhold cooperation in other areas.39

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In a 2013 memorandum to U.S. Attorneys, the U.S. Department of Justice (DOJ) identified eight areas for priority enforcement with the goals of preventing (1) distribution to minors, (2) sales to criminal associations, (3) trafficking of marijuana to other states, (4) use of the drug to conceal illegal sales, (5) increased violence related to illegal operations, (6) driving under the influence of the drug, (7) use on public lands and any environmental threats, and (8) use on federal property.40 The authority of the DOJ to issue such a warning and expect compliance has support in the Supremacy Clause (U.S. Constitution, Article VI), which makes federal law the “supreme law.” However, the power of Congress to regulate interstate commerce does not clearly indicate that Congress can prohibit a product: The prohibition can only extend to interstate commerce.

In a 2005 case known as Gonzales v. Raich, two California residents unsuccessfully sued to stop the federal government from interfering with their ability to grow and use marijuana under California’s Compassionate Use Act.41 In a 6–3 decision, the U.S. Supreme Court determined that states lack the right to legalize medical marijuana. The majority opinion focused on the impact of growing medical marijuana in a patient’s backyard and how such efforts could affect the black market for marijuana, insisting that the activities authorized by the California law could not be separated from the federal government’s broad regulatory scheme.

Although the Gonzales court stressed Congressional interest in social usefulness, that very interest—the medicinal or recreational social usefulness—is moved to the periphery given the CSA statutory restrictions on research, limiting its production and distribution to one federal agency: the FDA. Moreover, considering the FDA’s burdensome mandate to approve many foods and drugs and oversee their safety means it would have limited resources available even if it wanted to undertake such research. It should also be recognized that the popularity of many products does not always point to social approval: lottery tickets, liquor, pornographic materials, and cigarettes are examples. But the recreational aspect and popularity tend to sustain legitimacy.

What can become lost in the tug-of-war between federal and state regulators are the constraints on individual liberty—which, after all, is really at the heart of the Constitution. Individual liberty is the state of being that promotes a sense of identity through privacy in pursuing occupations, creativity in trying out new experiences, and spaces that allow for the autonomy of individual choice. Erosion of such liberty is not an unrealistic concern.

The ability to conduct medical research is one means of expressing the liberty to use one’s mind to advance social interests. Since the listing of marijuana in Schedule I of the CSA has been firmly upheld by the U.S. Supreme Court, the legalization of marijuana rests, in legal terms, on convincing Congress to amend the statute. Removing marijuana from Schedule I would allow doctors to prescribe the drug and open doors for more research in the private sector.

Critical Thinking Questions

1.   What are some ethical implications of the decisions during the 20th century that made marijuana illegal, decriminalized, and legal for certain purposes?

2.   What do you consider more important: providing medical marijuana to patients who want it, or preventing marijuana from being marketed for unproven medical uses? Give reasons for your answer.

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3.   If you were offered an opportunity to invest in medical marijuana research, how would you evaluate such an investment? What questions would you ask about the legalities and ethics of the project?

4.   In what ways is a decision about legalizing marijuana for recreational use different from a decision about legalizing it for medical use?

5.   How would one go about assessing the effectiveness of the War on Drugs with regard to marijuana? What are some key questions that would need to be asked?

6.   What are some ethical aspects of the conflict between states’ rights and federal jurisdiction when it comes to the marijuana legalization controversy?