The use of marijuana for medical purposes is now legal, to varying degrees, in twenty-three American states and the District of Columbia. Colorado, Washington, Alaska, and Oregon have also legalized the sale and possession of marijuana for recreational use, while Washington DC has legalized personal use, spawning an entire new industry.
Colorado is perhaps the most high profile state where recreational use is considered legal. On Jan 1, 2014, businesses in the state opened their doors to begin selling recreational marijuana for the first time. Going by the latest figures for 2015, upto and including October, Colorado has collected nearly US$110m in total Marijuana Taxes, Licenses, and Fees this year. The state will likely clear more than US$130m, once the final numbers are in.
Despite this growth in marijuana acceptance, there is a clear conflict in regulation. According to FinCEN, the Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana. The Office of National Drug Control Policy asserts, “state marijuana laws do not change the fact that using marijuana continues to be an offense under Federal law.”
With this in mind, and the possibility of criminal prosecution and liability, financial institutions have shunned the marijuana industry, closing accounts and refusing to provide facilities to businesses.
"From a credit union perspective, there are a lot of various factors that need to be considered when determining if we provide services to any business. At Rivermark, we don't presently serve marijuana-related businesses, but any decision to do otherwise isn't even a consideration unless we can resolve the conflict between state and federal law."
- Scott Burgess, Rivermark Community Credit Union CEO
Without the ability to access bank accounts, accept credit cards, or write checks, businesses must operate using large amounts of cash. Oregon’s Senators Jeff Merkley and Ron Wyden - in partnership with Senators Cory Gardner, Michael Bennet, and Patty Murray - attempted to rectify this regulatory misalignment in July, with the introduction of the Marijuana Businesses Access to Banking Act. Congressman Blumenauer had previously sponsored similar legislation, stating “it’s a disservice to these business people to deny them normal access to banking services.”
“There is absolutely no justification for forcing thousands of legal marijuana business here in Oregon and across the United States to do their business on an all cash basis,” said Representative Blumenauer. “Not only does this stifle the ability of people to actually grow their businesses, this is a serious public safety issue that will only continue as more states reform their laws.”
Senator Wyden added that current federal laws are making marijuana businesses “sitting ducks” for violent crime, by "compelling” Oregon business owners to operate on a cash-only basis. “It is ridiculous to make any business owner carry duffel bags of cash just to pay their taxes."
Senator Bernie Sanders joined the conversation in November, becoming the first-ever major-party presidential candidate to express support for legalizing and regulating marijuana for adult use. Sanders filled a bill called “Ending Federal Marijuana Prohibition Act of 2015,” which would strike all references to marijuana in the Controlled Substances Act, but retain penalties for transporting marijuana from states or jurisdictions where it is legal to those where it is not.
During the same month the state of Colorado provided a banking charter to Fourth Corner Credit Union, founded by Alex Mason. The Union hoped to overcome the bureaucratic hurdles faced by the industry, but was refused a ‘master account’ by the Federal Reserve, which would have provided essential facilities including check clearing and wire transfer.
However, the three banks with contracts to hold Colorado state funds, Chase, Key and Wells Fargo, appear to have had no issues maintaining banking relationships, in spite of dealing with revenue derived from marijuana - the tax on sales.
While attempting to navigate this minefield of potential litigation, and apparent double standards, some cannabis related businesses are looking to bitcoin as a solution. Marshall Hayner, the CEO of a San Francisco based dispensary called Trees, became aware of the digital currency in 2009. “Bitcoin is a perfect marriage for the cannabis industry,” he states.
“There is no larger industry right now that needs bitcoin more. Currently a US$2.5b regulated market with no known banking partners or payment systems is projected to be worth US$30b by 2019. Banks won't touch it because it's federally illegal and they don't want to lose their master banking connections. Several have tried but all failed.”
- Marshall Hayner, Trees Dispensary CEO
Although bitcoin payments remain low, with one every day or two, Hayner explains that his company is processing every transaction on the blockchain. When using payment methods such as credit and debit cards, the customers are in fact purchasing bitcoin. According to Hayner, the user interface and experience is seamless and “bitcoin is not pushed in your face.”
“It's a really great system though, all funds are held on blockchain and the accounts are similar to blockchain.info in that they are deterministic wallets which you can also back up yourself, so you always have funds as a merchant or patient/customer.”
Trees is not the only cannabis related company to experiment with bitcoin. In April this year, American Green Inc., the first publicly traded medical marijuana dispensary brand in the world, announced that their Zazzz vending machine, which sells marijuana products, will accept bitcoin as payment.