What You Should Know About Cryptocurrencies And Legal Cannabis

By Alex M

In 2012, when Colorado and Washington legalized marijuana for recreational use, the whole cannabis community celebrated the beginning of the end of pot prohibition.   Something many people wanted to see had finally happened,  but while many entrepreneurs have joined the Green Rush, they have encountered more challenges and business hurdles than most expected. One of the biggest issues facing the budding industry is the lack of traditional payment methods for buying cannabis at legal pot shops.

At the same time that we as a society are transitioning to a cashless society — legal cannabis remains primarily an all-cash business.  Cash the only form of currency accepted at most dispensaries and legal cannabis stores as marijuana remains federally illegal as a schedule 1 controlled substance.  This makes it harder for banks to accept any money coming from cannabis entities — even in legal states.

The $10 billion legal US marijuana industry has taken it upon themselves to expand their payment methods. Two cash alternatives that are increasingly being used are cryptocurrencies and loaded debit cards.

Cryptocurrencies in Dispensaries

Bitcoin, the first digital currency came out in 2009 and the technology has been improving ever since. Since then several cannabis specific cryptocurrencies have been released.  Among those making headlines:

Bitcoin: Bitcoin had a great run in 2017 and that is a partial reason why people are not looking to spend any. Everyone is hoarding their Bitcoins hoping the price is going to go up again. Besides that, Bitcoin is not meant to be an everyday currency. It is more of a store of wealth since transaction fees have become too expensive. However, some places are creating their own tokens which can be traded with Bitcoin.

A dispensary in San Diego called Medicine Man Club created what people call, “a country club for marijuana.”  They created a token called Medicine Man Token (MMT) and they use it for everything inside the marijuana events space, almost like Dave and Busters or Chuck E. Cheese. Instead of walking up to the arcade games and putting in quarters, you use the specific tokens. You use the tokens to buy cannabis and other related products. The Medicine Man Tokens can be purchased with cash, Potcoin or Bitcoin.

Potcoin: One of the most used cyber currencies inside dispensaries is Potcoin. It enjoyed first-mover advantage, and it is being marketed brilliantly, with a mobile app that is easy to pay inside the shop with a QR code. According to Potcoins blockchain explorer, there are new transactions happening every couple of minutes.

Reasons it Won’t Work

Cryptocurrencies offer many benefits for dispensaries, including giving customers the option to pay more freely, but it does come with its own set of problems. Zachary Zises, a Chicago dispensary owner said, “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.”  Matt Karnes, founder of GreenWave Advisors agrees, “Because cryptocurrencies are so controversial, we believe its use raises added concern for the cannabis industry, which already faces its own unique challenges for banking and do not consider it a viable option at this point in time.”

Alternative Payments

Since cryptocurrencies have not gone through mass adoption, it is hard for many people to use them for now.  Many still prefer debit cards, so it is not surprising to pre-loaded debit cards being adopted as an alternative to relying on fee-heavy ATMs to make cannabis purchases.

CanPay: Dubbed as the “first legitimate debit payment system for cannabis purchases,” CanPay is making it easier to buy your favorite strain. Tim Cullen, who owns Colorado Harvest Company said, “CanPay solves one of these pain points for us as a business.” People are flocking to CanPay because of their low fees and they’re even confident they will have the lowest fee structure, even after Visa and Mastercard start doing business with dispensaries.

POSaBIT: This is a startup that lets people buy legal weed with their credit cards. It is in the form of a credit card but it is linked to your Bitcoin or Litecoin. POSaBIT works connecting the card to you Bitcoin or Litecoin wallet. When you want to buy your legal weed, you simply swipe the card which takes the money out from your crypto wallet. It is one of the most used alternative payments in the cannabis industry since it has processed over $2million worth of sales in 30 stores total since inception.

GreenMed: A very popular debit card is the GreenMed and the interesting part is it’s connected to the blockchain. Simply add your credit or debit card information to your account and Greenmed can be used to pay at dispensaries. All information is relayed back to the blockchain which gives you an open and transparent source to check all data of a purchase.

Alex has been very deep in the cryptocurrency space for the last 3 years soaking in everything there is to know. With such a new industry popping up, Alex is constantly sharing about the latest news and updates in cryptocurrencies on CoinPupil. 


GreenMed Launches Cryptocurrency-Based Credit Card Processing App For Legal Marijuana Industry

CALIFORNIA: Pro-cannabis cryptocurrency startup GreenMed has become the world’s first one-stop shop for electronic payments in the legal marijuana industry. The platform enables customers to pay for legal marijuana with credit and debit cards. Apart from allowing card payment at dispensaries, the platform also allows users to pre-purchase for quick pick-up over its app.

GreenMed is the first platform to implement an ERC20 Ethereum token-backed application for the convenience of both customers and legal marijuana dispensary operators. The platform uses cutting-edge electronic payment processing technology in conjunction with Ethereum blockchain to execute credit card transactions.

Due to strict federal regulations, banks have been unable to partner with legal marijuana dispensaries, leaving cryptocurrencies like Ethereum as one of the only options to help the $5 billion industry accept mainstream electronic payments like credit/debit cards and electronic fund transfers. They can also choose to pay with digital currencies.

While the GreenMed application allows patients to pay for their legal marijuana with credit cards and cryptocurrencies, merchants can be issued GreenMed debit cards which enable them to withdraw accumulated funds directly from any ATM. The GreenMed debit cards can also be used at PoS and online payment gateways to make purchases, just like any other debit card.

In addition to convenience, GreenMed also provides a secure option for legal marijuana dispensaries to handle their earnings. In the absence of such a solution, the dispensaries are forced to conduct all transactions in cash which not only increases the risk of theft but also cuts into the margins due to high operational costs involved in securing and transporting cash.

Cashing In On Cannabis: CannaCon’s Banking Panel

By Sahar Ayinehsazian

Since Washington state legalized recreational marijuana in 2014, recreational cannabis sales have totaled over $1 billion, translating to more than $250 million collected in new taxes. Such substantial sales, however, have also brought problems for licensees in the form of cash.

Because of marijuana’s federal status as a Schedule I substance, financial institutions continue to deny banking services to state licensed marijuana businesses. Consequently, these businesses have been forced to deal in cash and suffer the sometimes lethal consequences.

There are, however, licensed marijuana businesses who have broken free from cash with the help of third party platforms like PayQwick. Licensed marijuana businesses can now easily access regular businesses bank accounts, cash management and bill pay services and the ability to send and receive electronic payments. These businesses also enjoy the added benefit of compliance services, which keep them operating in line with all of the state’s regulations.

To learn how to break free from cash, marijuana business owners and those considering the marijuana industry can attend CannaCon’s banking panel, Cashing In On Cannabis – Compliance, Banking and Cash Management” on Friday, February 17, 2017 at 11:30 am in seminar room two. Moderated by MJBA CEO and Co-Founder David Rheins, the panel features industry experts Kenneth Berke, Christine Masse, John Vardaman and Myles Khan.

Ken Berke is the Co-Founder and CEO of PayQwick, a compliance, cash management and electronic payment processing platform that has facilitated regular business bank accounts for over 200 licensed marijuana businesses throughout Washington. He is also an attorney with 29 years of experience and has advocated for the legal marijuana industry before regulators throughout the U.S.

Christine Masse is a partner at Miller Nash Graham & Dunn, where she leads the government and regulatory affairs practice group and specializes in representing businesses in highly regulated industries with their transactional, regulatory, and public policy needs. She also leads the firm’s tribal team, providing counsel to various Northwest Native American tribes and organizations on matters such as marijuana.

Myles Harlow Kahn is a legal officer at Foundry Law. His practice focuses on corporate, entertainment, intellectual property, business development, cannabis and regulatory matters. He is also the owner of Buddy’s in Renton, one of Washington’s most prominent marijuana retailers.

John Vardaman is Executive Vice President & General Counsel of Hypur, makers of technology enabling financial institutions to service cash-intensive businesses in accordance with legal compliance requirements. He helped author the Cole Memorandum, the DOJ document outlining how financial institutions can bank marijuana businesses in states where cannabis has been legalized.

Largest U.S. Banks Host Accounts for Marijuana Businesses, Says American Banker

FLORIDA: A recent study commissioned by industry journal American Banker reveals that the nation’s four largest banks have opened accounts for pot shops and marijuana-related businesses. Conducted by MRB Monitor, a firm that helps financial institutions identify the risks associated with the marijuana industry, the study examined public records in the state of Massachusetts and found that 34 percent of businesses that filed to operate medical marijuana dispensaries in Massachusetts between June 2015 and September 2016 had one or more accounts at Bank of America, Citigroup, Wells Fargo, or JPMorgan Chase.

If a similar pattern of working with the marijuana industry takes hold in Washington D.C. and the U.S. states that have legalized marijuana, the prospect of financial services for cannabis outfits may not be as dire as it at first appears.

Bank of America seems to have been the most accommodating. Over half of the marijuana businesses included in the survey had accounts at the bank, though it previously told the Statesman Journal that, “As a federally regulated financial institution, we abide by federal law and do not bank marijuana-related businesses.”

Guidelines issued by federal authorities in 2014 appeared to have offered financial institutions a legal avenue to provide their services to marijuana-related businesses (MRBs). Back then, the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury Department, provided guidance[3] it said was meant to enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.

Yet, under the Controlled Substances Act (CSA), it is illegal to manufacture, distribute, or dispense marijuana, and marijuana – like heroin, LSD and ecstasy – remains a Schedule 1 substance under the statute.

In December 2016, U.S. Senator Elizabeth Warren, D-Mass, a member of the Senate Banking Committee, along with nine other senators sent a letter to FinCEN requesting guidance on how banking services might be offered to ‘indirect businesses’ that provide services to the state-sanctioned marijuana industry.

Hopefully, after nomination season comes to a close, a response to that letter will be forthcoming; there’s a lot at stake. As ArcView Market Research wrote, “Cannabis is arguably the fastest growing industry in the world. Regulated marijuana sales in North America totaled $6.9 billion in 2016, a 30 percent increase from 2015. Sales are projected to increase to $21.6 billion by the year 2021 representing a 26 percent compound annual growth rate.”

Mounting Support for Marijuana Banking Has Widespread Implications

DISTRICT OF COLUMBIA: Although 28 states have already legalized marijuana for medicinal or recreational use, the U.S. Drug Enforcement Administration (DEA) continues to label marijuana a Schedule 1 substance, along with heroin and LSD, making it illegal on a federal level. As a result, the banking industry has been slow to provide services to marijuana businesses, forcing many of these companies to operate on a cash-only basis.

Cash transaction businesses are a tempting target for thieves, and the lack of oversight at times leads to lost tax revenue. It’s a situation that Senator Elizabeth Warren, a member of the Senate Banking Committee, is anxious to change. As the Associated Press initially reported, Warren and nine other senators have called upon the Financial Crimes Enforcement Network to issue new and stronger guidance allowing banks to provide services to marijuana shop vendors. The moves are a significant encouragement to payment processors supporting the cannabis industry, as well as other industry players.

One of the supporters is Singlepoint, Inc. (OTC: SING), a mobile technology and payments provider, which, through its “SingleSeed” Payments subsidiary, provides payment solutions for the cannabis industry. Its mobile marketing and payment solutions include cashless ATM, Pay-by-Text™ and text message marketing. The company is strongly encouraged by the efforts of Senator Warren and others on Capitol Hill, and the significant positive changes they could bring.

Previous guidance efforts by the U.S. Department of the Treasury gave banks only limited permission to work with legal marijuana businesses. Along with the DEA’s Schedule 1 listing, it has created a significant gap between state and federal treatment of marijuana. Even though the number of financial institutions willing to provide services to marijuana businesses has grown significantly in recent years, only a small percentage currently serve the industry. It’s still an area dominated by small state-chartered banks and credit unions.

Supporters however see an inevitable day, through efforts such as those now being led by Senator Warren, when large national banks like Wells Fargo offer comprehensive services to the cannabis industry, further spurring already rapid industry growth.

Pot Risk Vs. Profit: Bankers Cautious Of Marijuana Dispensaries

COLORADO: Every month, Jamie Perino hires a security detail to come to her three recreational marijuana dispensaries. They stop by, collect thousands of dollars in cash and head out to deliver the money to the state, county and city.

Perino, the CEO of Euflora dispensaries, said she can’t find a bank that will work with her. She pays her employees and her landlord in cash. She can only accept cash from customers. She must even pay her taxes in cash.

“I can’t bank my money,” she said. “It’s really frustrating. … When I go to pay my federal taxes, you get a 10 percent penalty for paying in cash, but we can’t have a bank account. So it’s just a big Catch-22.”

Pots Of Marijuana Cash Cause Security Concerns

COLORADO:  The unmarked armored truck rumbles to a stop in a narrow alley, and former U.S. Marine Matthew Karr slides out, one hand holding a folder, the other hovering near the pistol holstered at his hip.

With efficient motions he retrieves a locked, leather-bound satchel from a safe set into the truck’s side and presses a buzzer outside the door. It swings open to reveal a cavernous warehouse filled with marijuana and a safe stuffed with cash.

Welcome to the rear guard of Colorado’s rapidly expanding legal marijuana industry, where eager users pour millions of dollars — most of it in small bills — into buying pot, hashish, and marijuana-infused foods and drinks. All that cash adds up, and there are few places to put it: Federal regulations, which still classify pot as an illegal drug, make it difficult for marijuana producers to deposit their profits into traditional bank accounts.

And those cash-heavy small businesses make awfully attractive — and vulnerable — targets for criminals.


Pot Holders

WASHINGTON: On Valentine’s Day, the U.S. Treasury Department issued a memorandum clarifying the government’s advice to the nation’s banks about how to deal with the booming cannabis industry. It wasn’t exactly a love letter.

Sure, Treasury outlined a series of guidelines for “assessing the risk of providing services to a marijuana-related business”—but was that meant to be taken as advice to banks for getting into the weed game, and why would Treasury be telling banks how to get into the weed game if there were risks?

Most bankers and “potpreneurs” shrugged. The memo made clear that the manufacture and distribution of marijuana remains a federal crime, under the Controlled Substances Act, which means bankers who knowingly grant checking accounts or loan money to anyone in the cannabis industry risk federal prosecution for money laundering or conspiracy. Pot growers and dispensers worried they would still be hauling around bagfuls of cash, and claiming they operate such legitimate enterprises as sports bars and strip clubs when they really sell cannabis. Treasury’s letter wouldn’t change anything.

Except it has. That memo may have offered little more than tacit approval of banks’ getting into business with Mary Jane, but it was enough of a wink and a nod to convince at least a couple of brave (or desperate) banks or credit unions to stick their necks out and roll the dice, if not the doobies.


Spokane Washington Pot Businesses Could Bank On Credit Union

WASHINGTON: Numerica Credit Union is the first financial institution in the state willing to accept clients whose business is recreational marijuana, the Washington Liquor Control Board was told Wednesday.

But only for Spokane area businesses, Becky Smith, the board’s marijuana licensing manager, said: “They want to keep it local.”

That could give Spokane marijuana growers, processors and retailers a leg up on other licensed pot businesses around the state. Most haven’t been able to find a bank or credit union that will accept their business, and some have been dropped when bank officials find out what it entails.


Colorado Lawmakers Shy Away From Pot Bank

COLORADO:  A Colorado plan to set up the world’s first financial system for marijuana survived less than 24 hours before state lawmakers changed course Thursday night and shelved the idea.

The proposal would have allowed state-licensed marijuana businesses to create a financial co-op, sort of an uninsured credit union.

The measure was introduced late Wednesday and cleared a House committee on Thursday. But a few hours later, another House committee gutted the plan by amending the bill to say that Colorado will continue studying the problem of marijuana businesses having a hard time accessing banking services.

Lawmakers from both parties expressed reservations about whether the financial-services plan would work.

“Let’s take some time to have this properly vetted,” said Rep. Kevin Priola, R-Henderson, who sponsored the amendment to study the matter.