Cannabis and Cryptocurrencies: Legalization and Digitization

Now that cannabis is increasingly legal for both medical and recreational purposes, it’s having an effect on tech itself.  Not only does the legal drug market grow part of the tech sector, legalization is also having an effect on cryptocurrency markets.  The demographics likely to use cannabis are also likely to use cryptocurrencies.  As the legal cannabis markets continue to expand with greater legalisation, this occurs at a time when the cryptocurrency markets are maturing. In fact cryptocurrencies directly tied to cannabis have been launched and are trading.   PotCoin is one of the biggest cannabis based cryptocurrencies.  Buyers use Potcoin to purchase legal marijuana.  Essentially legal cannabis and cryptocurrencies are made for each other.

Cannabis Financial Transaction Issues

Thirty three US states have legalized marijuana in some capacity.  However, the federal government has not yet legalised marijuana.  As a result, major banks and major financial companies like Visa and Mastercard do not do business with vendors of legal marijuana as they fear criminal persecution.  The House has passed the Safe Banking Act which would allow cannabis vendors to use banks and mainstream financial institutions.  The Senate has yet to vote on this bill.

The only banking options that cannabis companies can use are credit unions or banks, and only in a capacity that does not cross state boundaries due to the federal jurisdiction over interstate and international commerce.  There are issues with holding large numbers of cash, such as it may make cannabis businesses more vulnerable to robbery. Any way of digitizing cannabis transactions makes them a lot safer for all parties involved.

Digitization increases the investment opportunities of cannabis companies.  Currently a business generating only cash would have to use cash to invest.  Though it’s possible to buy ownership stakes in other companies and make other investments in cash, it is certainly inconvenient. Moreover, there’s also the safety issues involved. Cryptocurrencies enable a better way for cannabis companies to invest in equity stakes in each other.  Or they could buy cryptocurrencies for investment purposes or use their cryptocurrencies to buy stakes in the fintech companies that enable cryptocurrency transactions. Cryptocurrencies have enormous importance for cannabis companies.

Cannabis and Cryptocurrencies

Cryptocurrencies became big among investors who purchase the currency for speculation.  Cryptocurrencies are a convenient way to exchange currencies and move money from nation to nation without paying foreign exchange fees.  Cryptocurrency has grown to the point where real estate is purchased with cryptocurrency.  As cryptocurrency has grown around the same time cannabis legalization has spread around the world, it has become an important way to purchase cannabis or to store funds relating to cannabis.   This is important, as it gives cannabis businesses alternatives to banks who either do not serve cannabis companies or offer limited services.

Traditional banks have not been aggressively lobbying to change the laws to serve cannabis companies, either.  This is their loss as it has allowed cryptocurrencies to move into this void in a major way. The cryptocurrencies developed for cannabis have much faster transaction processes speeds than bitcoin, essentially eliminating the risk that money will be lost as the currency goes up or down.  Specialized cannabis cryptocurrencies even exist for certain markets such as farming for medical marijuana or for the retail sector.

Fintech companies

There are hundreds of cryptocurrencies.  The biggest is bitcoin. A number of fintech companies have worked to develop platforms and payment systems to allow cannabis companies to efficiently use cryptocurrencies as an alternative for cash.  This is important not only for the customers, but for clients of cannabis businesses such as cleaning services, IT services, and other contractors cannabis businesses may use.

The reduction of cash means less money has to be spent on security. And while increasing safety in the cannabis sector, it actually grows the fintech sector as well so more jobs are created.  It can ultimately save cannabis companies money, as the mainstream payment processors such as Visa and Mastercard charge relatively high fees. The fees for buying cryptocurrencies are typically very low. Cryptocurrencies are not just used for recreational cannabis, the medical cannabis industry uses them as well.

As nations export and import cannabis, cryptocurrencies can be an important payment method in the trading of cannabis.  Cold weather nations like Canada and Germany import cannabis from Colombia and Portugal.  Once the US has full federal legalization, cryptocurrency in cannabis trade will become even more important. Merchants will want to avoid Visa and Mastercard fees (by then those payment processors will be involved).  Full legalization in the United States will increase the spread of full legalization around the world. In addition, legalization in one nation tends to have the effect of spreading legalization to other nations, especially neighboring nations.

Payment Processors

Retail businesses adapt cryptocurrencies as well.  The State of Washington in 2017 approved the use of cryptocurrency in buying marijuana for retail customers.  The state recognized the need for official approval in letting cannabis customers use cryptocurrencies.  New fintech companies became involved in processing credit card funds to cryptocurrencies, so consumers could use their credit cards indirectly to buy cannabis.  Currently federal and state tax authorities accept cash from cannabis vendors while the banking industry refuses for the most part to deal with cannabis dealers.

It may be possible for government tax authorities to one day accept cryptocurrencies as tax payments. The large volume of cannabis transactions are causing the fintech companies to grow as more cannabis vendors use cryptocurrencies.  This will have other long term effects. The fintech companies, made bigger by cannabis, will be much better able to compete with traditional payment processors such as Visa, Mastercard, or Paypal. This provides new competition and will ultimately lower the cost of payment processors for businesses.