Anyone who’s familiar with dispensaries will have run into the ubiquitous cash-only policy. Cannabis businesses are notoriously underbanked because cannabis is still considered an illegal substance by the federal government.
Earlier this year, there was hope for cannabis-friendly banks in California but SB 930, which would have created banks specifically for the cannabis industry did not pass the state senate. Since legislation is slow to offer cannabis businesses a financial alternative, some are turning towards cryptocurrency.
Cryptocurrency made headlines last year as economists and lay people watched the perilous rise and fall of Bitcoin and the public cases of fraud by companies like Coin Offerings in 2018. Despite news coverage, there’s still a lot that most people don’t know about cryptocurrency or blockchain, the system that makes it possible.
“Blockchain is the underlying technology that powers cryptocurrencies,” Jordan Friedman
CEO at payment processing platform for high-risk industries firm, Zodaka, explained. “Cryptocurrency is essentially an asset class for transferring value digitally, blockchain is technology that powers decentralized, digital ledgers.”
Cryptocurrency is free from federal regulations and not tied to Federal Reserve like the U.S. dollar. Friedman says that this lack of oversight led to many fraudulent currencies – basically scam “coins” that are not backed by anything. Cryptocurrency was also associated with crime, human trafficking and the dark web due to its lack of regulation.
But this lack of oversight is also what makes it an attractive choice to cannabis businesses. Technology and investment company, SinglePoint, recently released an app focused on making cryptocurrency transactions more user-friendly. They appeal to the tech-loving cannabis industry and provide an alternative to cash.
“We will see a rise in blockchain which will lead to additional currencies or new uses of the currencies currently out there,” said Wil Ralston, president of SinglePoint.
Even though cryptocurrency has become mainstream enough to warrant a question on 2018 federal tax forms, Friedman says that volatility is still an issue for crypto. While the boom-and-bust cycle of bitcoin may no longer be making headlines as often as it did in 2018, crypto is still a new and less stable than traditional banking and investing options.
“Trying to combine [cryptocurrency and cannabis], two brand new industries, where regulations are constantly changing in both is like trying to hit a moving target while riding shotgun with the driver speeding down a windy poorly lit road,” said Friedman.
Others feel that cannabis and crypto are good fit until federal regulations open up to provide cannabis businesses with a public banking or alternative option. Ralston says that SinglePoint is able to facilitate cryptocurrency transactions in high risk industries like cannabis.
“Crypto is still an unknown, until a major entity latches on I think we will see concern in the industry for transactional purposes,” said Ralston.
Although adopting cryptocurrency payment through user-friendly apps like SingleCoin may be a solution for current cannabis businesses, Ralston predicts that banks will eventually change their tune about working with dispensaries and other cannabis businesses. In other words, this profitable industry won’t fly under the radar for much longer without federal banking getting involved.
“Yes, there needs to be some oversight but overall what needs to happen is the education behind how the transactions work,” said Ralston. “A mix of alternative options plus security is probably the best bet [for cannabis businesses] right now.”