Chris Curl,
Editor
Sept. 21, 2022
Cannabis and Crypto
Cannabis and Crypto are natural bedfellows.
Both garner their fair share of controversy and occupy a legal and regulatory gray area in the US.
And many of the problems crypto purports to solve are common in the cannabis industry — biggest among them is access to banking.
Even though a growing number of states are legalizing cannabis for medical and/or recreational use, it is still illegal under federal law. This regulatory uncertainty makes it very difficult for dispensaries and cannabis companies to get access to the traditional financial system.
Dispensaries are forced to use cash since they've been shunned by banks and credit card networks. And hoarding such large amounts makes them a huge target for violent robberies.
So it would seem that crypto is the perfect solution to this problem. But it’s not so simple.
Due to crypto’s high volatility and transaction costs, many cannabis companies have little interest in getting involved. Add to that the trouble of setting up wallets and learning how to accept digital payments, and many business owners simply stick with the status quo. Even with all the risks and shortfalls, cash is still king.
That still hasn’t stopped many intrepid business owners in the space from utilizing crypto. But roadblocks remain.
Here in Spokane, Washington, where the recreational sale and use of cannabis is legal, many businesses have recently turned to crypto payments.
One entrepreneur, Sean Green, owns three pot shops in the city. Unable to accept credit cards for payments, he saw Bitcoin as an ideal alternative. This plan failed, however, as he was not approved by crypto payment processor Coinbase. They cited the fact that cannabis was still illegal under federal law.
Green is still able to accept Bitcoin for transactions but will have to forego quick conversions to fiat currency. That can be dangerous given the volatility of crypto assets. It’s also a challenge because profit margins in the cannabis industry are often razor thin. That’s because cannabis is illegal on the federal level, which makes the industry subject to Section 280E of the tax code. That excludes it from any of the normal deductions businesses can take, resulting in an effective tax rate of around 70% compared to 20% for traditional businesses.
Still, he has had numerous customers happy to use crypto to purchase cannabis legally. And I think this trend will likely grow in the future regardless of regulatory uncertainty.
And there’s hope on the horizon for the cannabis and banking industries. A bill with broad bipartisan support, called the Safe Banking Act, has been passed several times by the House. Unfortunately, each time it has gone to the Senate it has been rejected — most recently in July.
Still, it has been steadily gaining momentum and it’s likely only a matter of time until its passage.
That will be great for the cannabis industry as it will allow banks and other institutions to provide services to legal cannabis businesses without fear of federal reprisal. I’m certain that fees for cannabis companies will still be considerably higher than other industries but it will be an important step in the right direction.
Its passage will also likely come at a time when more regulatory clarity surrounding cryptocurrency is revealed, which will help speed up adoption.
The cannabis and crypto industries will grow together and continue to evolve as they become mainstays of the 21st century, creating new investment opportunities along the way.
P.S. My publication Crypto Cycle covers what I believe is one of the most exciting (and lucrative) spaces in investing. Get an all-access-pass to careful crypto expertise that’ll keep your money safe—and give you an edge on the market.
Chris Curl
Editor, Daily Profit Cycle