The state-legal cannabis industry has a big problem — it can’t use traditional banking. That means dealing with the hassle and liability of large sums of cash has become a fact of life for market participants. Do digital currencies like Bitcoin and Ethereum represent a potential solution? That all depends on who you ask.
Don’t feel bad if your first reaction to this story’s headline is “what’s cryptocurrency?” The idea is still slowly seeping into the mainstream discussion around money, but if you’ve ever heard of “Bitcoin,” that’s one expression of what we’re talking about — alternative currency that only exists as ones and zeros.
There are some basic explanations for the uninitiated, but the key feature to keep in mind is the lack of physical currency, because that’s the primary appeal for businesses producing high volumes of cash with no access to traditional banking.
Talking (Digital) Dollars
I recently had the opportunity to participate in a panel discussion at the CryptoCannabis Salon — a unique cryptocurrency seminar put on by the experience creators at Kulturehaus and held in the wild, whimsical “psychedelic Bingo” hall beneath the Tortona Big Top — a huge circus tent with Burning Man DNA at the water’s edge in Alameda, California.
I joined a broad spectrum of speakers representing many facets of the discussion: Suzanne Wouk, a board member of the Wo/Men’s Alliance for Medical Marijuana; Christina Sava, an attorney with the Law Offices of James Anthony; David Kaufman of Yes on 64; Sumit Mehta, the Finance and Strategy Consultant to the Arcview Group and Chris Hughes, a “hacker and digital innovator.”
When the panel’s moderator Victor Pinho, Director of Marketing and Communications at Berkeley Patients Group, asked me what the biggest issue facing the cannabis industry is when it comes to money, the kernel of my answer was “piles of cash.”
“To most of us, big piles of cash might seem like something you’d wish for if you had a magic lamp. But anyone trying to participate in a multi-million dollar industry and run a multi-thousand dollar enterprise on $20 bills can tell you it’s far from a dream come true,” I said. “It’s important to understand that the federal government isn’t just putting obstacles in front of entrepreneurs, they’re putting entrepreneurs in real physical danger.”
I added that this danger was illustrated once more by the recent armed robbery at Cannabis Buyers Club of Berkeley. Thankfully nobody was harmed, but not everyone in the industry has been so lucky.
So it’s understandable that some industry observers and participants might be intrigued by the potential reducing or eliminating the reliance on cash, but several factors including slow adoption by average consumers and real concerns about volatility have been obstacles.
The discussion was wide ranging, with Kaufman and Sava providing insight into the potential of smart contracts.
“You could have an escrow type arrangement where payments are released based the achievement of certain goals or benchmarks during cultivation,” Sava said.
Hughes is aggressively bullish on crytpocurrency and his energetic defense of its merits was thought provoking. Mehta served as the cautionary counterpoint, pointing to the volatility of digital currency as a primary concern for potential adopters or investors.
And that’s just the thing — is it an investment or a currency? Or something else?
In for a Penny In for a Pound?
When Hughes suggested that the cannabis industry should cast aside concerns about additional federal scrutiny because of cryptocurrency use, with the rationale that the whole industry is “already breaking federal law,” moderator Pinho dusted off a classic industry chestnut:
“Only break one law at a time.”
My take? It isn’t about risk — it’s about uncertainty.
“When you talk about the cannabis industry, you’re talking about some people who’ve been doing this since the Reagan Days — these are not risk averse people,” I said. “It’s about understanding: Bitcoin is mined, so is it like digital bars of gold? Is is a digital fiat currency? Is it a commodity? The volatility kind of makes it look like one.”
That uncertainty is still being worked out. Advocates like Hughes say to get in early, which makes perfect sense if you believe mass adoption is in the future. But for now, it’s still uncertain what role if any cryptocurrency will play in the near future of cannabis banking.
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