Twenty-nine states have jumped on board to legalize cannabis for medical and/or recreational purposes, and Canada is expected to fully legalize recreational in 2018. Already one of the fastest growing industries in North America, further legalization will continue to accelerate growth. But with cannabis remaining a Schedule I drug, cannabis-based businesses typically have no access to the traditional banking services that most businesses take for granted.
Banks can offer services to cannabis businesses, and some smaller ones actually do. According to a 2014 directive issued by the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, banks can legally service marijuana enterprises – as long as they take steps to ensure that they comply with regulations on money laundering. But efforts to ensure that a bank is in compliance with those regulations and reporting unlawful account activity can be so costly and burdensome that most financial institutions, particularly larger ones, simply opt not to take on any cannabis customers.
The inability to take advantage of standard banking forces cannabis-related businesses to deal only in cash, creating multiple problems ranging from theft to the logistics of managing large stacks of dollar bills. Accepting credit and debit cards is not a solution, because these card payment solutions must clear into a bank account. No bank account, no ability to accept credit or debit card payments. Its back to cash as a the sole solution.
The FDIC (Federal Deposit Insurance Corporation) will not insure any financial entity for cannabis-related transactions until cannabis is federally decriminalized. That means cannabis businesses either have to create partnerships with unreliable and unstable payment processors or engage in risky and illegal practices to conceal the cannabis connection. Even if regulations change to allow wider use of banks and credit cards in all areas of the cannabis industry, merchants may be reluctant to accept those cards because of high transaction fees and other financial penalties.
In order to bypass the limitations of traditional banking, we can look to the booming field of cryptocurrencies. These digital currencies are made possible by blockchain technology, which is a decentralized ledger that offers superior security, immutability, and transparency over centralized data repositories. With this secure ledger, industries can build custom tokens that act like currencies in order to facilitate commerce without using cash or credit. Using a blockchain-based cryptocurrency solves the financial issues facing the cannabis industry of today. With this system in place we can finally scale this industry to its full potential.