Though over half the United States has legalized cannabis in some form, it’s still a gray area for many states. And, of course, Attorney General Jeff Sessions isn’t making acceptance any easier with systematic anti-cannabis statements and actions. It’s no surprise, then, that the marijuana industry continues to face many uphill battles, with money being one of the most pressing issues.
You might be thinking, “But wait! The cannabis industry is estimated to be worth $7.7 billion and is expected to grow to $31.4 billion by 2021, according to the Brightfield Group. That’s a lot of money!” And yes, you’re right. In one sense, there’s money to be found in marijuana, but the potential for growth is limited. Developing industries need more than cash; they also need investments and banking.
Investing in Cannabis
Investments are vital for small business owners to get their cannabis companies off the ground. Unfortunately, according to some experts, including Jim Cramer, host of “Mad Money,” investing in marijuana is as speculative as investing in cryptocurrencies such as Bitcoin. Cramer told CNBC, “As far as I’m concerned, there’s way too much speculation in this sector already.” Just as many people view Bitcoin as a potential get-rich-quick scheme—just take a look at the 19-year-old Bitcoin millionaire Erik Finman—many people see marijuana the same way. But for serious investors, both markets are too volatile.
The issue with investing in marijuana stocks or companies is that there’s very little guarantee and a great deal of risk. It’s not just that marijuana is hot right now and many stocks are overinflated; the real problem is that, at any moment, the government could jump in and cause trouble for the industry. The truth of the matter is, “it is federally not legal to invest directly in marijuana companies,” Dan Ahrens, COO of AdvisorShares Investments and author of Investing in Vice told the Globe and Mail. And if the U.S. government so decides, investors “could be forced to divest from their illegal investments” without much warning—a concern for anyone focused on making more money.
Banking in Cannabis
It’s this legality problem that has made banking a struggle for the industry. Only around 500 banks will work with marijuana businesses, and none of those are major branches. This means that for thousands of businesses, there’s no way to accept credit or debit cards—cash is the name of the game. Cash, however, poses many dangers for both buyers and sellers. Not only are cash businesses more likely to be robbed, cash adds an unnecessary level of risk to every transaction. But in a wonderfully ironic turn, the same cryptocurrencies that were once compared to marijuana as a poor investment opportunity are now offering the cannabis industry an alternative form of payment.
Is Cryptocurrency the New Cannabis Cash?
“Cryptocurrencies and the marijuana industry have a natural intersection,” Bryan Meltzer, a partner at law firm Feuerstein Kulick, who specialize in cannabis clients, told CNBC’s Annie Nova. Cryptocurrencies offer dispensaries and growers a safer way to handle cannabis transactions. Using Bitcoin, operators can avoid having cash on hand while adding a level of transparency to every sale. It’s all thanks to blockchain technology—the mechanism behind cryptocurrency. “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value,” wrote Don and Alex Tapscott in their book, Blockchain Revolution. Think of it as a shared database that keeps public and easily verifiable records of every cryptocurrency transaction.
What does this mean for marijuana businesses? It means that by accepting a currency like Bitcoin instead of cash, they can track every transaction back to its source and ensure each payment is legitimate and theft-proof. “We’re seeing there are fewer risks with blockchain transactions than with your normal credit card,” Leslie Bocskor, president of the cannabis advisory firm Electrum Partners, told CNBC. Many dispensaries are turning to Bitcoin for a financial solution to their cash woes, and technology companies such as SingleSeed and POSaBIT are cropping up to offer simple Bitcoin payment methods. There are even some cannabis-centric cryptocurrencies, like PotCoin and HempCoin.
Unfortunately, cannabis and cryptocurrency are still in the beginning stages of their relationship. According to some experts, however, the cannabis industry could lead the country in fully embracing cryptocurrency, and once they do, other industries are sure to follow.
SingleSeed Payments, a subsidiary of SinglePoint, is a payment solution provider for the cannabis industry. The app offers the ability to exchange Bitcoin and Ethereum for products without going through a bank. Learn more at singlepoint.com/products/bitcoin.
POSaBIT is a financial technology company based in Seattle. Their software integrates with any Point of Sale (POS) system and allows dispensaries to accept digital currency—such as Bitcoin or Litecoin—as a form of payment to help reduce cash transactions. Learn more at posabit.com.