As the world watched Tuesday night’s US election results roll in, there was more than one major surprise in store. Not only did the underdog presidential candidate win the nation’s top office, but Marijuana became legal to purchase in eight more US states, quadrupling the number of US citizens who could legally get high for recreational purposes.
Recreational use of Marijuana is legal now in the states of California, Massachusetts, Maine, and Nevada for the first time in a century. They join Colorado, Washington State, Alaska and Oregon. That brings the previous 17.2 million total number of Americans who could buy cannabis for recreational use up to 67.1 million. California alone triples the number of Americans with access to recreational cannabis.
The newly added medical-only states are Florida, Arkansas, Montana and North Dakota. Medical marijuana was previously legal, to some extent, in 25 states plus the District of Columbia, precisely half of the USA.
However, since the drug is still labeled as a Schedule One drug nationally, the federal Controlled Substances Act states that marijuana is illegal to manufacture, distribute, or dispense for recreational use in every state. The only exception the federal government allows is for those with a prescription from your doctor for a serious illness, such as glaucoma, epilepsy, cancer or AIDS. Many US states don’t allow cannabis for those purposes either.
“State marijuana laws do not change the fact that using marijuana continues to be an offense under Federal law.”
- The Office of the President of the United States
Being the first state to legalize medical marijuana 20 years ago, California will have new problems since the hundreds of existing medical dispensaries are likely to run into funding problems they didn’t previously have as soon as they upgrade to sell to recreational users. All of those newly-illegal businesses will need a way to move their revenue around and pay suppliers with. For the most part, they won’t be able to get a bank account, buy anything online, nor accept cards from customers. New cannabis-selling businesses will likely have an even harder time finding a bank.
Federal agencies have made it a uniform policy to shut down the bank accounts of growers and merchants doing perfectly legal business in their own states. Since Colorado led the charge for legal cannabis businesses in January 2014, thousands of growers and vendors making large amounts of money legally are uniformly turned down by banks for everyday banking services.
There are currently very few indications that the federal ruling making recreational marijuana illegal will be overturned, despite Tuesday’s victories in the polls. President-elect Donald Trump is a conservative republican candidate, which is a platform that has historically been strongly against marijuana legalization.
While Trump holds the same position on marijuana regulation as the current president, saying that it’s a ”States Rights” issue, the Federal Reserve Bank has stated, “Even transporting or transmitting funds known to have been derived from the distribution of marijuana is illegal.”
“[Trumps] most likely appointees to senior law enforcement positions — Rudy Giuliani and Chris Christie — are no friends of marijuana reform, nor is his vice president.”
- Ethan Nadelmann, Drug Policy Alliance Executive Director
Being an unbanked business with lots of cash on the premises leads to some major problems that the industry is desperate to solve. Paying for supplies and services online is nearly impossible as marijuana businesses can’t get a credit or debit card. Merchant services to accept customers’ payment cards also turn them down as a rule.
The businesses also shoulder the burden of additional security, vital for large cannabis growers and vendors, because of all the cash lying around. There are high costs to operating like a casino, requiring using armed guards, armored cars, and extra security cameras.
While cryptocurrencies like bitcoin offer a tentative solution to the burgeoning cash problem, businesses attempting the switch are forced to use bitcoin ATMs with large fees, or have to build relationships with vendors on sites like LocalBitcoins or Paxful in order to turn their cash into bitcoins. In the other direction, bitcoin service providers like Coinbase, Circle, and US-based exchanges all face the same federal regulations as banks, requiring more creative solutions.
Bitcoin debit cards like Wirex, Xapo, and Bitpay are usually able to help with this problem. Cannabis vendors can use these bank account-replacements to spend bitcoins, although the same banking restrictions still apply and no one card will work for everyone.
Bitcoin alone clearly isn’t a perfect solution yet, and a more nuanced solutions are needed within the cannabis industry. Luckily, several solutions have popped up lately for business to business suppliers and vendors. One is Security Grade Protective Services, Inc., a full-service security firm for the cannabis industry based in Denver. The company recently announced they are accepting Bitcoin as payment.
“[Bitcoin] gives them another safer option to pay us in an already risky and cash heavy industry. Now they don’t have to touch the cash … furthermore, they don’t have to pay outrageous merchant service fees.”
- Derek Porter, Security Grade Protective Services CEO
Many more solutions are out there. There is even now a Crypto Cannabis conference series that meets every few weeks in cities around the country for the purpose of bringing marijuana vendors and bitcoin vendors together. The series proclaims that it offers, “The best minds in the cannabis industry, Discussing the pros and cons of Bitcoin in the cannabis industry, With the best minds in the Bitcoin world.”
Even some bitcoin-cannabis specific tech startups are starting to make an appearance. San Francisco-based Trees is trying to tackle deliveries with Bitcoin and drones. “Bitcoin is a perfect marriage for the cannabis industry,” Trees’ CEO Marshall Hayner said. “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.”
Other startups are focusing on cannabis industry education and assistance. Third-party vendor 1620 Solutions offers a “Processing solution for industries which experience financial censorship such as Cannabis.” The startup teaches vendors all about running their business with Bitcoin and using a bitcoin visa card like Wirex’s bitcoin banking solution to spend them as dollars. Wirex, formerly E-Coin, is based in London.
For a small fee, the service also gives vendors an integrated bitcoin payment solution for their websites, and a dedicated account manager and community forum to discuss using bitcoin solutions with other users.
“Payments made using Bitcoin for your goods or services are automatically ‘exchanged’ into receivership denominated in US dollars, and then transferred from your Bitcoin wallet (mobile or web based options) to our customized physical plastic (not hemp plastic yet!).”
- 1620 Solutions
Various other entrepreneurs are also trying to get into a marijuana industry. Gateway, the first cannabis industry accelerator, is based in Oakland California and offers startups like Trees a four-month mentoring session, a demo day, and an upfront investment of $30,000 for six percent of their business equity.
However, a more direct approach was just Demonstrated by Bruce Fenton, a previous Executive Director of the Bitcoin Foundation and a founder of the Bitcoin Association. The bitcoin angel investor wasted no time after hearing the news about his home state of Massachusetts making Cannabis legal.
Since there were no existing Marijuana businesses in his state yet, he used his facebook page to offer startup funding to entrepreneurs, saying “Okay legal Massachusetts marijuana entrepreneurs: Send me your business plans. Time to write some checks. Especially interested in businesses addressing the lack of banking services for legal marijuana companies.”