Despite legalization in 18 states, marijuana remains a Schedule 1 controlled substance by the Drug Enforcement Agency and is federally prohibited. Because of this, the cannabis industry doesn’t have access to federally insured banking systems available to every other business in the country.
Some businesses are exploring the possibilities of cannabis-specific cryptocurrency. Both cannabis and crypto came to the forefront at the beginning of the 2010s. Both exist outside of longstanding traditional industry norms, and both are often dismissed too quickly by serious businesses.
Cannabis Crypto could be a possible solution to cannabis’s financial straightjacket. Several crypto coins, or tokens, are on the market: PotCoin, CannabisCoin, DopeCoin, and HempCoin. PotCoin, launched in January 2014, was designed to possibly solve the cannabis industry’s banking challenges.
Capitalizing on Colorado’s legalization of cannabis, its creators installed a PotCoin ATM in a dispensary there. Blockchain technology also provides cannabis manufacturers with the possibility of precisely tracking their production process from seed to sale, guaranteeing customers quality control and vigilant product supervision.
On the downside, cryptocurrency is famously volatile – not a good thing for a business looking for steady growth. In the first half of 2021, Bitcoin dropped as low as $30,000 and rocketed to over $60,000.
Cryptocurrency is so unpredictable that it can be dramatically affected by a tweet from Elon Musk or a photo op of Dennis Rodman wearing a PotCoin t-shirt.
Also, because cryptocurrency is an appreciating asset, it can unexpectedly activate tax charges.
If a $100 in Bitcoin quickly appreciates and is suddenly worth $120, it could trigger capital gains taxes for the holder of that currency.
Cannabis cryptocurrencies also suffer from a lack of technological innovation. Being limited to a single industry narrows their potential market outreach.
For any currency to be truly effective and successful, it has to be widely used and adopted by publicly traded companies. And, cryptocurrencies ultimately need banking because banks must convert digital assets into traditional currency.
Scottsdale-based Hypur is a payment and banking technology platform that enables financial institutions to bank highly regulated industries, such as cannabis.
“A company’s dependence on crypto could negatively impact its financial operations in the face of numerous potential consequences,” Tyler Beuerlein, Hypur’s chief revenue officer, said in an interview with Benzinga.
“They could suffer from unpredictable value fluctuations, increased tax liability, and even the loss of a company’s bank accounts or banking partnerships.”
Cryptocurrencies and tokens have a financial immediacy, practicality, and cost-saving aspect. But unless central banks tokenize their currencies, they stand little chance of joining international trade operations.
For now, traditional financial services remain the best option to provide what the industry requires. And although cash is still king when it comes to cannabis sales, dispensaries would be wise to give the option for crypto payment methods to customers.
Perhaps people will be able to purchase their favorite strains packaged in glass containers using cryptocurrency in the near future.