Hmmm, is he sure? I used to know a grad student in a math program down in Texas who has trouble getting any work done unless he took a few puffs. He said it helped him "visualize" the math problems.
Whether it did or not, I looked him up on the internet recently, and it looks like he's done alright for himself.
The law seems inconsistent, to say the least. First of all, why a complete loss of funds? Why not treat it like a fine, deducting a certain amount of aid depending on the severity of the crime? All-or-nothing approaches are like slegdehammers, but sometimes you need a dremel tool.
I too have known many outstanding students who 'indulged' a bit during undergrad/grad school. I think this is a stupid policy.