Although medical and recreational marijuana is legal in many states across the country,annabis remains illegal under federal law and the the lack of federal regulation forces the industry to operate outside the traditional financial system.
Dispensaries and other cannabis companies without access to federal banks and credit card networks are forced to accept and hold cash, creating a dangerous situation for workers.
This untenable situation resulted in more than 80 armed robberies in Washington state alonesome of which ended in death.
Cannabis entrepreneurs are also forced to pay exorbitant bank fees that must be paid at state-licensed institutions.
Is cryptocurrency a possible solution?
Cryptocurrency has long been touted as the solution to The banking problems of the American cannabis industry. According to CoinDeskthe the problems of the legal cannabis industry “go far beyond a lack of access to banking services.” The question now is whether cryptocurrency is a possible alternative to “Legacy financial system by accepting crypto payments and storing money in crypto wallets rather than storing stacks of cash.”
According to a CoinDesk report, “Crypto’s inherent volatility and high transaction costs make it a poor substitute for cash, deterring many would-be cannabis business owners from bothering to create a digital wallet and learn to accept it. crypto payments.”
In 2018, Coinbase closed a Washington-based MMJ Dispensary Accountciting federal regulations.
Even if cryptocurrency were the solution, there would be other problems it couldn’t legally solve, such as high taxes, low profit margins, and black market competition.
Background: Silk Road, a darknet founded by Ross Ulbricht, introduced the marijuana industry and the cryptocurrency sector. “Before being shut down by the FBI in 2013, the Silk Road allowed people to use bitcoin to buy and sell marijuana, which was criminalized in many states at the time.”
However, there have been changes that have normalized both industries since then. CEO Ryan Hunter pointed the Crypto Cannabis Cluba social club for cannabis users, “essentially uses NFT such as the membership card”, referring to non-fungible tokens.
Cannabis, crypto and social equity
Popular CAD is a decentralized autonomous cannabis organization that is primarily for BIPOC leaders in the cannabis industry to access capital. Also, there are other organizations that provide NFT services to strengthen their community.
Henry Baskervillethe owner of Colorado-based law firm Fortis Law Partners, told CoinDesk that Section 280E tax requirements mean that cannabis companies pay a tax rate of about 70%, compared to the rate of average corporate tax of 20%.
“A lot of people get into cannabis thinking they’ll make money, but they don’t factor in those lower taxes and profit margins, so they fail,” Baskerville said.
Section 280Estates that businesses selling cannabis, or any other federally illegal controlled substance, cannot deduct expenses incurred in the production, distribution, and sale of that product.
With tight profit margins and cash flow problemsCryptocurrency volatility would also be a risk for cannabis companies.
Marijuana banking reform is needed
The Cannabis Secure and Fair Banking (SAFE) Act was created to give cannabis businesses in legal-use states what they lack today: safe and affordable access to banking services.
The bill, introduced by Rep. of Colorado Ed Perlmutterputs in place protections for banks and credit unions so they can offer loans, equity investments, and other services to cannabis companies in states with legal markets.
In Junethe Senate rejected bipartisan marijuana banking legislation for the sixth time in the final version of the US Innovation and Competition Act (aka The America COMPETES Act).
“SAFE won’t solve all of the industry’s problems, but it would have a significant impact,” Baskerville told CoinDesk. “Some cannabis business owners pay around $2,000 a month just for the sake of having a bank account.”
What About Blockchain Technology?
Sundie Seefried, CEO and President of Safe Harbor Financial, which has been providing cannabis-related banking services since 2015 and has processed over $14 billion, is excited about the possible implementation of blockchain technology. “From start to finish, I know it’s legit [cannabis] plant from the start if we do it right,” Seefried said about integration potential of blockchain technology.
“The cannabis industry has a lot of friction, a lot of redundancy, and a lot of authentication. That’s a problem, and through the use of blockchain technology, everything is transparent,” said Ben Bartlett, a member of the Berkeley, California City Council and a cryptography attorney. “With the automated use of smart contracts, this greatly reduces the amount of friction in the cannabis industry.”
Photo: Courtesy of Pietro Jeng On Unsplash