Medical cannabis is now legal in most states in the U.S. and recreational cannabis in a few. However, at the federal level, cannabis – whether medical or recreational – is still classified as a prohibited substance. Meanwhile, globally, only a few countries have legally allowed medical cannabis, and there are much fewer ones that have at least decriminalized the drug for recreational use.
Because of the current state of cannabis legislation in the U.S. and around the world, major banks are still not embracing cannabis companies. This means that cannabis companies are still unable to accept major credit or debit cards.
And because cannabis businesses could not access credit and debit card services, they are forced to accept just cash. All the cash on hand entails constant security threat and logistical problems.
Needless to say, this inability to access and take advantage of traditional financial institutions is the cannabis industry’s biggest hurdle next to legislation. Especially if you consider that the legal cannabis industry was valued at $6 billion last year and is projected to grow into a $50-billion industry by 2016.
For this reason, many in the cannabis industry are pinning their hoped on cryptocurrencies like bitcoin. Bitcoin consists of digital coins that are “mined” by computers while solving complex mathematical problems. There are at least two financial-technological startups that use bitcoin as an intermediate step allowing marijuana users use their bank-issued credit and debit cards to purchase pot. These are POSTaBIT and SinglePoint Inc.
How does it work?
A customer has to decide first which cannabis product to get. He or she will then have to decide whether he wants to pay for it with cash or with digital currency like bitcoin. If the customer chooses to pay for it with bitcoin, he or she can either use his or her credit card to buy bitcoin through POSTaBIT, SinglePoint, or other bitcoin portals, which will impose transaction fees.
The customer will now have bitcoin equal to the value or price of the cannabis product he or she wishes to buy. He or she can then redeem the currency from the store.
Of course, the customer can also choose to keep his or her Bitcoin and use it somewhere else that accepts the said currency. However, if the customer purchases the product using Bitcoin, POSaBIT will pocket the transaction fee then sends the dollar value of the product to the store’s bank account.
Industry experts are not confident
Using Bitcoin and other cryptocurrencies may sound like a very simple and hassle-free solution to the cannabis industry’s banking dilemma, but it does not come with its share of disadvantages.
For one, Bitcoin is still not universally accepted. It has a long way to go before it earns wide acceptance. For another, the currency is still widely associated with the dark web and with illicit drug dealing. Getting rid of this notorious reputation will take time.
Moreover, a majority of people still have difficulty understanding how the digital currency works. This bit, however, can be easily addressed through proper education.
There is also a good chance that even before virtual currencies like bitcoin could really take off, banks will decide to give the cannabis industry a chance and lift their “ban.”
Furthermore, industry experts pointed out the current threat to cryptocurrencies. Despite the early enthusiasm some players are showing, the experts do not believe that Bitcoin is going to solve the cannabis industry’s banking troubles. Aside from the low adoption rates among consumers, they said that the virtual currency has an extremely volatile value and does not provide businesses with a clearly reliable way to store revenues.