With financial institutions shunning the marijuana industry, cannabis growers are turning to the world’s most popular digital currency bitcoin to offload piles of green bills.
Pot businesses in the US have to operate using large amounts of cash as they have no ability to access bank accounts, accept credit cards, or write checks. That’s a logistical headache and constant security threat, they complain.
Marijuana is legal for both recreational and medical use in California, Oregon, Washington, Nevada, Colorado, Massachusetts, Maine, Alaska and the District of Columbia. The sale of pot is also approved in 20 additional states for medical purposes only.
Statistics from financial services firm Cowen & Co showed legal cannabis was a $6 billion industry last year, and is expected to grow to $50 billion by 2026.
Financial-technology startups, such as POSaBIT and SinglePoint, use bitcoin as an intermediate step that lets pot buyers use their bank-issued credit cards to purchase weed.
“There’s no industry - whether it’s the production and sale of cannabis or the production and sale of a cup of coffee -that can operate safely, transparently or effectively without access to banks or other financial institutions and traditional services,” Jon Baugher, co-founder of POSaBIT, whose technology is used by 30 dispensaries in Washington state, told Bloomberg.
“That’s where we thought we could leverage the use of digital currency.”
According to POSaBIT, the company has taken steps to comply with federal and state laws regulating both marijuana sales and digital currency. Customers have to present a valid ID that is scanned, encrypted and stored, while buyers are allowed to acquire no more than $150 in bitcoin to prevent money laundering.
The company has a nine-point fraud-detection program designed to thwart criminals. It also requires that retail customers have a bank account, not necessarily a given in the cannabis industry.
People from the cannabis industry say it may only be a matter of time before pot dealers have an easier solution than using cryptocurrencies.
The reluctance of banks to handle pot transactions will probably subside before the digital-currency solution has a chance to take off, said Jeffrey Zucker, co-founder and president of Green Lion Partners, a strategy firm focused on early-stage development in the cannabis industry.
“The banking issues are going to be solved in such time that the people in this industry are going to gravitate toward traditional banking,” he told Bloomberg.