How Bitcoin Could Serve the Marijuana Industry (With Banks Still Nervous)

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

The reason venture capitalists have become so intrigued with Bitcoin over the past year or so is because it is what the industry refers to as a “disruptive technology.” Some of the key tenets of a disruptive technology are that it allows people and businesses within a certain industry (or industries) to do things cheaper, faster, and better than before by a significant, if not revolutionary margin. Bitcoin easily checks all these boxes. Even more than that, it also frees humanity from the vengeful whims, or simply the bureaucratic inefficiencies, of the state apparatus. Case in point, when Wikileaks was unable to access the traditional banking system due to a state sponsored blockade, they were still able to obtain funds through Bitcoin. In fact, that specific example, is the primary reason that I officially got behind Bitcoin in late summer 2012. I made this point clear in my debut article on the topic titled: Bitcoin: A Way to Fight Back Against the Financial Terrorists?

Which brings me to the topic of today’s post. Medical marijuana is already legal in 20 states plus the District of Columbia. It is also completely legal for recreational use in two states; Colorado where I reside, as well as Washington State. Nevertheless, big daddy government still thinks it knows best and continues to classify the relatively benign substance as a schedule one drug under federal law. As such, the banking system, (including state banks) is simply to afraid to get involved. Enter Bitcoin.

Well at least that is what I suspect will happen. As of now, it has been anecdotally reported that one dispensary has made Bitcoin payments an option, but I haven’t seen any clarification as to which one. I see this as a fantastic opportunity for both the Bitcoin community as well as the marijuana industry to come together to solve a major problem. It could be a huge win-win for both. The main question on my mind at this point is whether or not the main Bitcoin payment processing companies Coinbase and BitPay will agree to play along…

*Note: Since the publication of this post a reader pointed out that since the Bitcoin payment processors do utilize the banking system, it doesn’t exactly solve the problem. This is a fair point, but leads me along another thought process. It may indeed end up being a blessing in disguise as it sets up the marijuana industry as the perfect testing ground for use of BTC as an actual currency. Ie, potentially paying suppliers and employees in Bitcoin, perhaps only partially at first. This is going to be fascinating to watch.

First let’s examine the problem. A recent article from the New York Times highlighted it. Here are some key excerpts.

The New York Times writes:

Legal marijuana merchants like Mr. Kunkel — mainly medical marijuana outlets but also, starting this year, shops that sell recreational marijuana in Colorado and Washington — are grappling with a pressing predicament: Their businesses are conducted almost entirely in cash because it is exceedingly difficult for them to open and maintain bank accounts, and thus accept credit cards.

 

As a result, banks, including state-chartered ones, are reluctant to provide traditional services to marijuana businesses. They fear that federal regulators and law enforcement authorities might punish them, with measures like large fines, for violating prohibitions on money-laundering, among other federal laws and regulations.

 

“Banking is the most urgent issue facing the legal cannabis industry today,” said Aaron Smith, executive director of the National Cannabis Industry Association in Washington, D.C. Saying legal marijuana sales in the United States could reach $3 billion this year, Mr. Smith added: “So much money floating around outside the banking system is not safe, and it is not in anyone’s interest. Federal law needs to be harmonized with state laws.”

 

The limitations have created unique burdens for legal marijuana business owners. They pay employees with envelopes of cash. They haul Chipotle and Nordstrom bags containing thousands of dollars in $10 and $20 bills to supermarkets to buy money orders. When they are able to open bank accounts — often under false pretenses — many have taken to storing money in Tupperware containers filled with air fresheners to mask the smell of marijuana.

 

The all-cash nature of the business has also created huge security concerns for business owners. Many have installed panic buttons for workers in the event of a robbery and have set up a constellation of security cameras at their facilities beyond what is required, as well as floor sensors to detect break-ins. In Colorado, Blue Line Protection Group was formed a few months ago, specializing in protecting dispensaries and facilities that grow marijuana, and in providing transportation security. The firm largely uses military veterans who have Special Operations experience.

Also in a recent article, CoinDesk alludes to a possible solution using Bitcoin:

At least one marijuana dispensary in Colorado has reportedly begun accepting bitcoin.

 

A somewhat bigger problem for dispensaries lurks in federal law. They cannot accept credit card payments, so all purchases must be in cash – or bitcoin.

 

Banks and credit card companies are playing it safe. They must comply with federal legislation and although it might be possible to come up with a workaround, they do not appear interested at this point.

 

Federal law has forced dispensaries to accept cash, and cash only – but bitcoin is a tempting alternative. Anonymity does not matter, since recreational marijuana is legal in Colorado, but with no credit cards in the mix, it is practically the only alternative.

 

Sales of recreational marijuana in Colorado are reportedly exceeding $5m a week, and banks simply cannot enter the fray until regulators give them the green light.

It’s still early days, but this is fertile testing ground for Bitcoin’s disruptive, game-changing capabilities. I will be eagerly watching this story.

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0b1knob's picture

There is an interesting SF book called The Diamond Age about the post banking world of governmentless anarchy.    The book takes place in the near future where all economic activity is conducted by encrypted untracable means.   The point of the book is that once transactions become untracable they also become untaxable.  This does not work out well for the USSA although England and China adapt and survive.   Once the government losses control of the currency they are gone like a mirage.

Very interesting read.

NotApplicable's picture

I'm thinking banks will get the greenlight after tax authorities tire of dealing with stacks of all cash payments.

CH1's picture

I love it that our sanctified, omnipotent overlords are shooting themselves in the foot... again.

Fukushima Sam's picture

To avoid the dangers of a cash-only business retail pot shops could:

1. Accept only Bitcoin, or give price incentives for Bitcoin purchases.

2. Provide Bitcoin ATM in front lobby.

3. Immediately convert Bitcoin sales to USD deposits in electronic accounts.

4. Profit and enjoy the fruits of your labor.

zaphod's picture

I am very confused. Didn't the FED just shutdown Silk Road because of all the drugs? 

And this gave Bitcoin legitimacy because now it was not associated primarily with drug use.

And now Bitcoin is going to help enable a legal drug industry. 

None of this makes any sense.

GetZeeGold's picture

 

 

 

I always pay for my dope with bitcoins....that way the DEA always knows where to find me.

bonderøven-farm ass's picture

A friend of mine owns several dispensaries in CO....and he's expanding.  Cash has been a blessing and a problem, so he's been purchasing physical gold.  He's not the only one.

GetZeeGold's picture

 

 

Acapulco Gold is bad ass weed....and worth it's weight in gold.

 

My dealer is old school.....he takes gold....but he's still a little leary about bitcoins.

 

Don't even think about placing your order over a cell phone.....he hates that crap.

http://www.youtube.com/watch?v=2nG7aix-VO4

markmotive's picture

What if the electricity goes? Will bitcoin retain value during a war?

Bitcoin myths exposed

http://www.planbeconomics.com/2014/01/bitcoin-myths-exposed.html

CH1's picture

Maybe you should stand on the street, wave your arms, and scream Bitcoin Is From The Devil!

TheAnswerIs42's picture

Buying or selling ANY amount of certain coins, like American Silver /Gold Eagles is NOT subject to the IRS 1099B reporting requirement.

The transactions can be completely private and legal, but it depends on the PM dealer as to whether or not they file the 1099B (it is "optional").

 

CH1's picture

Didn't the FED just shutdown Silk Road because of all the drugs?

LOL... as if they really hated drugs. They shut it down because it made them look stupid.

And this gave Bitcoin legitimacy because now it was not associated primarily with drug use.

Dream on. It became far more popular after the SR takedown.

And now Bitcoin is going to help enable a legal drug industry.

Currencies work for ANY industry - that's what currencies are for!

So, are you going to learn anything, or lash out wildly at BTC because it is "other"?

sessinpo's picture

Or is could simply be

1) legalized on the Federal level

2) thus allowing for credit/debit cards to be used.

 

Milestones's picture

Quite frankly, I'm at a loss to understand how a STATE CHARTERED BANK is hindered by Federal laws if the State Bank issues it's own Debit card, good for only Mary Jane customers in Colorado.( Though perhaps it would be better to hanle things --Wow I can see many problems now I hadn't thought about. How do you transfer the money around if local but federally encumbered banks in say N.J. refuses to accept a cashiers check from the M.J. bank in Colorado---yet the M.J. bank in Colo. is using FRNs--This could get dicey--does that constitute interstate commerce but then the initutial use of FRN.s to buy M.J. i Colorado is interstate commerce to begin with.

Hell I think I'd better end this comment and get  the ole thinking cap back on. There has got to be a way if the will is there. Whoever solves this mother is going to be a wealthy man.

Course I'm sure if the bank is JPM or Goldman-sucks a solution wil be forthcoming. Greed is really going to be in play here--plus a really neat answer will be provided by the Supremes.

Sorry for taking up your time.               Milestones

Martel's picture

1. Accept only Bitcoin, or give price incentives for Bitcoin purchases. 2. Provide Bitcoin ATM in front lobby. 3. Immediately convert Bitcoin sales to USD deposits in electronic accounts.

If the merchants themselves operate the ATM, they also get some profits from the exchange margin. That could be substantial. Since it is mostly one way transaction (customers buy bitcoins to buy pot), Lamassu's ATM suits fine. It costs just $5000 or so.

icanhasbailout's picture

yeah right like the taxman is going to complain about all those embezzlement opportunities

Unpopular Truth's picture

tax authorities can collect taxes at point of sale. Here is how: http://www.bitcoinhatersguide.com/collect_taxes.html

fonestar's picture

Bitcoin is currently not being used by the underworld (not the internet's underworld).  When that changes, how high Bitcoin could go is anyone's guess.

Harbanger's picture

"Bitcoin is currently not being used by the underworld"

Do you just throw things out for effect, What makes you say this?

NoDebt's picture

How the hell did you and I end up on the same side of this argument?

chumbawamba's picture

Can someone smart please explain to me how weed can be legal in the D. of C. but yet the feds still raid cannabis collectives in California, clear across the other side of the country, in a foreign political jurisdiction no less?

I am Chumbawamba?

Skateboarder's picture

Always two sets of rules in Empire my friend. San Jose got clubs got nailed for a second a couple of years ago. Just cuz. Hemp Con in San Jo this weekend. Come one, come all, get yer picture taken by the feds.

Harbanger's picture

It's not just weed, there are many laws that don't apply to DC.  It's selective enforcement.

Unpopular Truth's picture

are social security deductions in the same boat?

fonestar's picture

"Bitcoin is currently not being used by the underworld"

Do you just throw things out for effect, What makes you say this?

 

I'm still reading of cases all over the place of people getting caught with double and triple wrapped bags of cash.  And I'm thinking to myself, "you don't need to do this anymore guys".

Harbanger's picture

"people getting caught with double and triple wrapped bags of cash."

Fiat smugglers are not the people you're looking for.  Those are most likely poor fools trying to get some $ out of their capital controlled country.

Musashi Miyamoto's picture

I don't know anything about the efficacy of saran-wrap but once upon a time i stashed my money in a shoebox under my bed. Now that I have dedicated myself the path of Sotoshi I fear not of spiteful prostitutes and sketchy landlords. I am free to accumulate as much in liquid assets as i so desire without fear of govt. taxes or other "liberators".

P.S. A lot can be said of rubber-bands, you can wrap each 100 and each 1000 into wads and bricks for a more "professional" feel. its important to maintain image. Flashing a brick of cash with a hot date gets you to 3rd base on the bad nights.

firstdivision's picture

 liquid assets

to which BTC is not at all

sleigher's picture

Did you not read those stories about silkroad and that ulbricht character?

TheHound73's picture

"The underworld" has a $500 billion market cap. Bitcoin's is $10 billion.

NoDebt's picture

"Bitcoin is currently not being used by the underworld"

Of course not.  Of course not.

If anything's got a chance at being the world's new black market currency, it's BitCoin.  Do you want me to lay out for you the restrictions MtGox has put on my account in the last 6 months in a clear effort to limit it's effectiveness for small-time crooks?

 

CH1's picture

Real crooks use HSBC and Wachovia.

fonestar's picture

That's a big part of it. Currently, the companies that serve as a junction between the dollar-BTC worlds are dumb enough to believe they are going to confer favour from the state by playing by the state's rules.  More Bitcoin has to filter out further from these first adopters for Bitcoin to make a mark in the upper and underworld's economies.

Musashi Miyamoto's picture

I had this conversation on the darknet a couple months ago. IMHO Bitcoin could and should be left to the "Bill Maher Libertarians" and associated establishment posers. The Underground will develop its own cryptocurrency. Think about it, with over 100 altcoins I think that we will see the development of the "darknet altcoin" that will grow in tandem, and become widely accepted within the cyberspace black-market.

Hongcha's picture

Fonestar, a lot of good people are underworld and off the hook.  Me, I'm getting my costume ready.  Ready for perpetual halloween.

Who knows what it's used for.  On the internet nothing is true and everything is permitted.

Acet's picture

The Internet: where men are men, women are men and little girls are FBI agents.

firstdivision's picture

Dafuq are you smoking?  Did you buy it off Silk Road?

LawyerScum's picture

I'm currently reading a book by the same author (Neal Stephenson) called "Snow Crash".  In the book denominations of the dollar have gone up to billion and trillion levels.  The remnants of the U.S. Gov. have to put out a memo about the proper usage and acquisition of toilet paper that billion dollar bills are unacceptable replacements for toilet paper because they clog up the pipes.

Skateboarder's picture

My friend who has read a jillion pages recommended and gave me a copy of his Snow Crash. I opened that shit and the protagonist's name is "Hiro Protagonist." I thought "eww, cheesy," and put it away. Really been meaning to give it another try. I wouldn't have been given it if it wasn't worthwhile.

Hongcha's picture

Skateboarder, you might give Snow Crash another shot although it was published 20 years ago and like William Gibson may be a tad behind the times.  It is interesting to see how much N.S. anticipated but not 650 pages interesting.

I think the California clubs do just fine without the goddamned MC, Visa, Chase, BofA, insurance companies and other assorted cuntage involved.  What I don't like is every transaction gets recorded with Hongcha's name on it. And my card links to my home address.  But tell you the truth, I am not terribly concerned about that; there are only about other 2 million licensed pot smokers in the state.  

I would be interested to know how CO and WA are working the I.D. thing.

If you give these young kids credit card access to the pot clubs, dear me then it might swing a little more out of control.  At this point it's fine, no credit extended and there should be none extended unless you are truly ill.

Seems ACA has pushed the natural remedy segment out into the cold.

Funny how the Fed aligns with and supports all the dead things - banks, insurance cos., jails, big pharm, Monsanto, oppression of natural cures.  The Fed is itself is necrotic, is evil in its banality.

"It's not that they don't want you to do drugs.  They just want you to do their drugs."  Chris Rock

Skateboarder's picture

Thanks for the reinforcement/opinion, Hongcha. I will certainly at least try to make a dent in it before I give up a second time.

This one time I was skating at one of my local parks. It has this curvy ledge that ends in a 90 degree turn, meaning that you have to pop over the impending curb facing you. Not the greatest picture, but here:

http://oi40.tinypic.com/2u41z53.jpg

So I was haulin' ass, trying to go for 2 blocks' length that day. Somewhere along the way, the ledge was sticky. Sticky as in, you stop sliding in an instant, and you get thrown forward. Being thrown about six to eight feet, I clipped my lower quadricep tendon on the 90 degree ledge facing me as I somersaulted and ate shit on the ground below. Couldn't fucking believe what had just happened. I put my ass on my skateboard and pushed myself to get the pipe. Pain relief. The tendon was fucked, but that wasn't to be fixed until all the inflammation had gone down. Imagine a smooth bundle of fibers being seperated laterally in the E/W directions and lumped to form bumps/hills in the N/S directions. The swelling and inflammation lasted a month. The second month, as some tendon healing had taken place, I got high every night and slowly massaged my tendon pieces back into a bundle shape. It was pretty painful for the first ten days, and the bud-dha was the single most helpful tool in times of duress. I refuse to take bigPharm and only use natural remedies. Fuck their horsebollocks manure.

sleigher's picture

Reading about the endocannabinoid system in our bodies and what happens to cells when we get cancer is quite amazing.  I truly believe that bud-dha was placed here for us by whatever power it was that made the universe.  Look at cancer cells and CB2 receptors, then understand what cannabinoil does when it hits those receptors.  No way this could be a mistake or just by chance.  Only pure evil would keep humans away from one of the greatest gifts to man.

Harbanger's picture

All TPTB want is for you to get a proper prescription first, then follow the rules given for your safety and pay some taxes.  Simple enough. 

Harbanger's picture

No sense of humor.  Jeez, what did people expect legalization to look like.

BLOTTO's picture

Im baked right now.