- REUTERS/Kim Hong-Ji
- The cannabis industry doesn’t have widespread access to banks, and conducting business with only cash has its risks.
- Many dispensary owners are excited about using cryptocurrencies like Bitcoin to solve this problem, but it’s not a miracle solution for a number of reasons.
- That hasn’t stopped cryptocurrencies from trying to elbow their way into the industry.
The rapidly-growing cannabis industry has a cash problem, but dispensary owners around the country say cryptocurrency isn’t a miracle solution.
Most banks won’t take cannabis cash, so dispensaries in states where the sale of cannabis is legal have been forced to explore alternative payment solutions as they are locked out of even the most basic tools of doing business, like opening a checking account and accepting credit cards as payment.
That’s a huge problem for an industry that’s expected to hit $10 billion in sales this year and $24.5 billion by 2021.
Cannabis dispensaries pay extremely high taxes
Dispensaries often pay penalties for submitting taxes in cash, even though they are barred from opening lines of credit. And a section of the tax code prevents businesses that deal directly with cannabis, like dispensaries, from deducting legitimate business expenses.
It all adds up to cannabis companies paying an effective tax rate of 65 to 75%, according to the New Federalism Fund, a nonprofit organization advocating for the cannabis industry.
And there are obvious security risks – including theft and accounting fraud – that come with handling and storing large amounts of cash.
Bitcoin is the opposite of what dispensaries need right now
But while cryptocurrencies like Bitcoin may seem like a logical solution for cannabis companies to get around the cash problem, it’s the opposite of what dispensaries need as the industry struggles for legitimacy under federal prohibition, according to cannabis CEOs.
Krista Whitley, the CEO of Altitude Products, a Nevada-based cannabis company, said while she’s “very enthusiastic” about cryptocurrency’s potential to solve problems in the cannabis industry, it can “draw unwanted attention,” on otherwise law-abiding dispensaries.
When she approached Nevada’s cannabis regulators about using cryptocurrency, they threw cold water on the plan. “It’s definitely on our radar for the first quarter of 2018,” Whitley said.
Cannabis dispensaries also must meet strict reporting standards to ensure that no cannabis is diverted to the black market to avoid taxes.
A number of software platforms help dispensaries report seed-to-sale data to state regulators. But using cryptocurrency would muddy the trail. Since cryptocurrencies are entirely digital, that would likely bring extra scrutiny onto dispensaries, and could invite federal interference.
“We have too many strict state and federal standards to meet, and right now, the cryptocurrencies don’t allow us to meet those high standards,” Zachary Zises, a dispensary owner in Chicago told Green Market Report, a cannabis-industry focused publication.
- Reuters/Jason Lee
That won’t stop the cryptocurrencies from trying
There are a number of cryptocurrencies geared toward cannabis, despite the industry’s reticence.
Potcoin, which advertises itself as a secure solution for the cannabis industry’s banking problem, has resorted to publicity stunts – like sending Dennis Rodman to North Korea – to drum up enthusiasm for the currency, though it’s worth noting that the coin gained 11.99% since Tuesday to hit $0.33.
And Paragon Coin, whose CEO is former Miss Iowa Jessica Versteeg, has attracted some negative attention on blogs and social platforms like Reddit. Some prominent crypto-watchers have called the coin overhyped and, like Potcoin, it has relied on celebrity endorsements.
Still, some dispensaries and cannabis companies are starting to experiment with cryptocurrency.
One startup, POSaBIT, uses cryptocurrency as an intermediate step to let customers buy cannabis products with their credit cards, Bloomberg reports. POSaBIT places kiosks in dispensaries in legal states like Washington and Colorado, where a customer can use their credit card to buy Bitcoin, which can then be redeemed in the store.
- Thomson Reuters
The cannabis market banking issues will probably go away
Some in the industry believe the banking issues may get resolved before the widespread adoption of cryptocurrency.
A bipartisan group of lawmakers, including Sen. Cory Gardner, Rep. Carlos Curbelo, and Rep. Earl Blumenauer, is working on whipping up the votes for an amendment to the House version of the Republican tax bill, which would allow cannabis dispensaries to claim standard deductions. Gardner tried to tack this onto the Senate bill, though he pulled the amendment before the bill was voted on.
Flowhub, a business management platform for the cannabis industry, also announced earlier this month it was entering a partnership with Canna Pay to provide cashless payment to dispensary partners in legal states.
While both cryptocurrency and the legal cannabis industry are still relatively new, it’s not yet clear whether the two are a match.
“We’re actively monitoring it,” Whitley, of Altitude, said. “We’re hoping the issues with cryptocurrency will get worked out by the end of 2018.”