Two of the biggest buzzwords of 2018 have been cyrptocurrency and cannabis. Both industries have seen an tremendous influx of investment from people trying to capitalize on these new business ideas. Almost every week, I see a new event pop up for people who are interested in finding the synergies between these different industries. Everyone knows that banking is a huge problem for the cannabis industry (as we’ve discussed here, here, and here), and many see the obvious connection for how cryptocurrency could help resolve that. However, that connection will not likely occur anytime soon (at least not before the cannabis banking issue is resolved).
The cannabis industry is a highly-regulated industry at the state level, and marijuana remains a strictly controlled substance under federal law. In order to prevent theft, product diversion, and other criminal activity, states have required businesses to use state-run track-and-trace systems. This system also tracks the amount of money businesses are making and where that money is coming from.
Cryptocurrencies are peer-to-peer networks of decentralized currencies that are traded on a public ledger by using blockchain technology. A cryptocurrency platform could allow cannabis businesses to transact with digital currency instead of cash, making the business safer for all players, and bypassing the need for banks in many cases. It sounds like a natural fit. So, why won’t it work for now?
Combining cryptocurrency and the cannabis industry would join two extraordinary and rapidly changing industries. Although the federal government decided it would proscribe marijuana long ago, it has not decided how to manage cryptocurrencies. The underlying blockchain technology is also largely unregulated, and is overseen only by other users on the blockchain (see our articles on blockchain and cannabis here, here, and here). Both cryptocurrency and blockchain have been used by people for money laundering and evading taxes.
A growing number of recreational marijuana states have implemented stringent licensing and control programs to demonstrate the legitimacy of their respective industries to federal government. Bringing in a technology and a payment protocol that has been used for money laundering and tax evasion could delegitimize the progress that the cannabis industry has made. At the very least, if cannabis businesses start running transactions on cryptocurrency platforms, their businesses will see more government oversight from other federal bodies, like the SEC and IRS.
It will be interesting to see if a real crypto/cannabis relationship can emerge to help resolve the banking issue, but for now we have more faith in the underlying technology, blockchain. We will continue to monitor the possible synergies between cryptocurrency and cannabis and update on any developments.
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Author: Alexa Halloran