26 Aug Should Cannabis Look to Cryptocurrency as a Banking Solution
Following the 2020 November ballot, medicinal cannabis is now legal in 36 states, and recreational cannabis is legal in 17 states. However, Cannabis remains federally illegal, and because of this, banking continues to be a struggle for many cannabis companies. Now, the rise of altcoins has many wondering if cryptocurrency could provide a solution to bypassing traditional banking systems in the U.S.
Cryptocurrency and Cannabis
Both legal, recreational cannabis and cryptocurrencies are in their infancy. Both faced issues with social acceptance and continue to forge a similar and sometimes intertwined path forward.
Some view the potential relationship between crypto and cannabis as a token of growing the cannabis industry without waiting for lawmakers to campaign for an update to current banking regulations surrounding controlled substances. At the same time, others see it as too risky. What is the current relationship between crypto and cannabis?
There are several cannabis-related cryptocurrencies such as Potcoin (POT), CannabisCoin (CANN), Dopecoin (DOPE), and HempCoin ($THC). All use blockchain technology that creates a transparent ledger that records transactions safely on “a block.” Each block contains individual transaction details. The idea is businesses can track transactions just like a bank would, without the worry that comes from working with a bank.
In 2021, the state of Nevada even partnered with a blockchain cryptocurrency company, Multichain Ventures, Inc., to create a pilot program that establishes a closed-loop payment processing system for marijuana companies. The goal is to make a safe way for cannabis companies to pay local and state taxes while offering an alternative to traditional banking.
Pros of Using Cryptocurrency
- Cash-free transactions: Right now, many cannabis companies rely heavily on cash, which isn’t ideal. Crypto offers cannabis companies a way to move away from cash.
- Low fees: Banks sometimes charge higher fees to cannabis companies. Meanwhile, crypto banking offers relatively low fees.
- Transparency and compliance: The cannabis industry is highly regulated. Companies need to comply with several protocols. The blockchain technology used by crypto companies provides tools to create a secure and tamper-proof ledger.
Cons of Using Cryptocurrency
- Tax Laws: Cryptocurrencies are taxed differently than regular business income. Companies need to track the value of each crypto amount against the U.S. dollar at the time of the transaction, which can be time-consuming and costly.
- Volatility: Crypto is not stock and can be highly volatile, potentially wreaking havoc on a company’s finances if things go wrong.
- Changing Regulations: Just like cannabis, regulations surrounding cryptocurrency are constantly evolving. Crypto also isn’t backed by any government.
Should My Cannabis Company Use Cryptocurrency?
That is a complex question as both the crypto and cannabis industries are somewhat coming of age together. It probably wouldn’t be wise to only run a business using cryptocurrency. But, it might be wise to consider accepting crypto as a form of payment from customers.
Major companies like Microsoft, Paypal, Overstock, and Starbucks all accept payment in Bitcoin. For consumers who want to explore using crypto, it can expand your pool of customers. However, don’t open your doors to using crypto if you don’t have the proper systems in place to track transactions consistently.
You don’t want to open your business to possible, additional compliance issues. Consider talking with an expert in cannabis compliance on how to implement cryptocurrency transactions into your business model.