Are Cryptocurrencies the Future of Cannabis Commerce? (GUEST POST)
Despite the fact that states have legalized marijuana in some form, medically or recreationally, only about 400 financial institutions provide banking services for those operating businesses in the industry. This means that a great many cannabis businesses must rely on cash payments and are unable to accept payments such as credit or debit cards or checks. In addition to being inconvenient for their customers, running a cash business can be dangerous.
The primary reason that banks refuse to do business with cannabis business is because marijuana is still a Schedule 1 drug under the federal Controlled Substances Act (CSA). In February 2014, the Financial Crimes Enforcement Network (FINCEN) released a memo to provide guidance to banks regarding marijuana customers. The memo included the following:
“In general, the decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include its particular business objectives, an evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively. Thorough customer due diligence is a critical aspect of making this assessment.”
Despite the FINCEN memo, most banks are reluctant to do hold accounts for businesses whose deposits are based on federally illegal activity.
Enter cryptocurrencies. Cannabis and cryptocurrencies seem like a pair made for one another: both markets operate in a gray legal area. Many dispensaries are only equipped to deal in cash, and cryptocurrency has failed to obtain large scale buy in from consumers and retailers. So, being able to pay through a cashless medium such as a cryptocurrency transfer appears to be a potential win-win solution for both industries.
In addition to the above, there are additional reasons why cryptocurrency use in the cannabis market can be useful. A primary reason is the use of blockchain technology by cryptocurrencies. A blockchain is basically a verified, secure chain of information that can be used to purchase goods or services. This could prove useful since cryptocurrency blockchains allow the tracking of cannabis from seed to sale.
While there are a few cannabis-related cryptocurrencies out there, PotCoin and DopeCoin are the biggest. Below is more information about these two cryptocurrencies.
What is DopeCoin?
DopeCoin was created in 2014 by James Allen. Allen’s intentions were to give cannabis consumers a secure way to trade marijuana through cryptocurrency. DopeCoin aims to do more than just underwrite the buying and selling of cannabis. For example, it is also looking into advertising. DopeCoin’s primary appeal to cannabis consumers and businesses is that it actively markets the cannabis industry at large.
What is PotCoin?
Developed the same year as DopeCoin, PotCoin scored notoriety and social media attention when it sponsored Dennis Rodman’s flight to North Korea. PotCoin is focused on legally-purchased cannabis (meaning legal under state law) and hopes to become the de-facto currency of the state-regulated cannabis industry. It is currently accommodated or purchasable at approximately 800 locations in 35 countries.
In the same way that BitCoin has competitors in DogeCoin and Ethereum, so PotCoin and DopeCoin have less well-known competitors in HempCoin and WeedCoin. The newest player on the block is VapeCoin, which will cater to those who are in both the vaporizer and cannabis industry. However, don’t expect to be able to buy your vape pen or dry herb vaporizer using cryptocurrencies just yet. There are only a small minority of retail outlets that accept it.
Despite the fact that DopeCoin is accepted at a number of legal cannabis dispensaries, it does not appear that many people are using it. Neither the customers nor the dispensary owners or operators seem to be using the cryptocurrency to make transactions.
Why? One reason may be that simply going to an ATM and getting cash is much easier than fiddling with a phone application, purchasing the cryptocurrency, waiting for the buy order to be filled, then making the transaction. Additionally, when you consider the entire financial market, the market and users of cryptocurrencies are a fairly niche group. This is even more so with the sub-niche of cannabis-related.
Cryptocurrencies and cannabis could be a winning team, but they’re not quite there yet. It should also be kept in mind that cryptocurrencies are a volatile market, and there has been some talk of federal regulation in this area. And, there appears to be a significant push in Congress to fix banking issues. If Congress legislates a solution to the cannabis commerce problem it is difficult to envision cryptocurrencies gaining a foothold. But if Congress fails to act, cryptocurrencies may become intwined with future cannabis commerce.
February 24, 2019
This is a guest post by Michael Jacobs. Michael is a marketing and creative content specialist at GotVape.com with a primary focus on customer satisfaction. Technology and fitness combined with healthy lifestyle obsession are his main talking points.
Rod Kight is an attorney who represents lawful cannabis businesses. He speaks at cannabis conferences across the country, drafts and presents cannabis legislation to foreign governments, is regularly quoted on cannabis matters in the media, and maintains the Kight on Cannabis legal blog, where he discusses legal issues affecting the cannabis industry. You can contact him here.