For the last decade, two new industries have been reshaping both business and culture on a global scale: legal marijuana and cryptocurrency. It’s no coincidence that both of these industries arose from failed government policies, and that both benefited heavily from an early association with underground marketplaces. But now that legal weed (and other THC/CBD products) have become fully legal in many states, and cryptocurrency is rapidly being adopted by the biggest players in the financial world, mainstream investors are finally taking both industries seriously.
The legal marijuna industry still faces major challenges, however, and cryptocurrency has become an essential tool for many businesses in the sector. Why is that? In this post, we’ll examine the five biggest reasons that legal marijuana businesses have come to rely on crypto.
1. Outdated banking rules: From the perspective of the FDIC, any bank that offers their services to a business that sells marijuana is breaking federal law. Simply providing a basic business checking account to an otherwise tax-paying, law-abiding marijuana dispensary could be interpreted as a form of money laundering. These banks would face serious fines and criminal charges, and it’s simply not worth the risk for them. As a result, most THC-selling companies operate on a cash-only basis, storing their operating funds and profits in heavy, armored safes. Cryptocurrency offers these businesses a better option, allowing them the option to securely store funds, pay vendors and suppliers (many of whom also accept crypto because they also can’t get bank accounts), and keep easily auditable records. “Be your own bank” has long been a motto for cryptocurrency enthusiasts, but for the legal marijuana industry, it’s essentially become the status quo.
2. Security-minded customers and suppliers: Even in those states where recreational marijuana is fully legal, the legacy of the decades-long War on Drugs can still be felt. People don’t want banks, government agencies, or data-mining corporations to have easy access to their financial records, particularly when it comes to buying and selling marijuana-related products. Bitcoin and other cryptocurrencies allow for secure, irreversible, peer-to-peer transactions that can’t be easily tied to specific purchases. That’s a big selling point for customers and suppliers who want to keep their personal data secure from prying eyes.
3. Protection from arbitrary law-enforcement policy changes: At the federal level, marijuana is still classified as a Schedule I controlled substance. Legally speaking, marijuana is considered just as harmful as heroin, and more dangerous than cocaine, which is on the Schedule II list. While many states have decriminalized or legalized THC-based medications and recreational marijuana use, it’s still very much illegal at the federal level. The only reason that dispensaries aren’t constantly being busted by the DEA and other federal authorities are the policy guidelines, mostly from the Obama era, which discouraged such actions in states where pot has been legalized. Should those policies change under a new regime, legal marijuana businesses of all kinds — growers, distributors, retailers — could have their assets and cash seized in raids. Many businesses see this a very real possibility, viewing off-site cold wallets for their cryptocurrency earnings as a kind of insurance policy.
4. Censorship-proof transactions: Third-party payment processors present a serious challenge for legal marijuana businesses. If the payment firm flags a transaction as suspicious — not exactly unlikely in this legal gray-area of an industry — it can halt that payment, reverse it, or even freeze it until it has been cleared by law enforcement or regulators. It’s completely up to the payment processor how these situations will be handled, and they are often under no legal obligation to explain their decisions. Any individual credit or debit card purchase, for instance, may go through multiple middlemen, any one of whom could stop the transaction in its tracks. This creates a huge amount of uncertainty for those in the legal marijuana business. Cryptocurrency transactions, on the other hand, can’t be censored. No one can stop it, freeze it, or reverse it. That’s a big selling point for a cash-only industry that operates on the fringes of the banking system.
5. Long-term investment: Legal marijuana businesses have been on the front lines of the cryptocurrency revolution for years, and as a result they’ve been able to see the benefits first hand. Even if they only began accepting crypto reluctantly as a next-best option to traditional banking, being at ground zero for the blockchain revolution has shown them the potential of this new monetary system. Some of these now-legitimate business owners have become true bitcoin advocates and Ethereum evangelists, helping to shape the cryptocurrency use cases for traditional businesses who don’t yet realize what they’re missing out on. They see the potential for a complete sea change in the global financial system, and they want in at the ground floor.