Bitcoin addresses banking chaos for legal and medical marijuana industry
Monday 24 August 2015
New initiatives by cannabis technology companies are set to solve the regulatory deadlock that surrounds money management in the legal and medical marijuana sector.
‘Unbanked’ or ‘Underbanked’ are words we typically associate with low-income countries, where people are routinely denied banking facilities. But it’s not just the third world: major businesses in the US are unable to access reliable banking - and not for the reasons you might imagine. Nineteen states currently allow medical marijuana - typically used for pain control, as well as symptom relief during chemotherapy and for people with HIV/AIDS. A further four states permit recreational use. But despite being entirely legal in almost half of the United States, marijuana businesses can’t open a bank account, accept credit or debit cards or cheques.
Bitcoin and legal/medical cannabis are the perfect partnership - and it has nothing to do with anonymity
The problem is that the marijuana industry is regulated on a state-by-state basis, whilst the banks are regulated on a federal basis. Even if marijuana is legal in one state, it’s illegal at the federal level. It’s not impossible for banks to deal with the industry, but it involves a lot of red tape and extra costs, and most don’t want to get involved.
The result is that many cannabis businesses are forced to operate on cash alone. It is not uncommon for growers and dispensaries to have hundreds of thousands, even millions of dollars on the premises - a huge security risk, and one that brings significant overheads for storing and transporting the funds they need to continue their business. Many have found themselves a target for robbery and extortion. Others have had literally dozens of bank accounts closed.
It’s an irony that is not lost on bitcoin entrepreneurs, since bitcoin is also regulated on a state-by-state basis in the US, with no overall consistency. What bitcoin can offer the marijuana industry is fast, secure, low-cost money transfers. And, since bitcoin is borderless, it doesn’t matter where the payment processors are. It’s as easy and cheap to send money to an exchange in Europe or a payment processor in Australia as it is for a customer to pay with it in the store - reducing security costs, crime and transfer fees.
There are some big players in the space. They have the infrastructure, and now they are starting to adopt bitcoin as a new payment method that neatly bypasses the regulatory snafu that currently dogs the industry. In the process, it avoids the huge risks of theft and fraud, and the associated costs in mitigating these. It is a very 21st century solution to a very old problem. That, of course, creates savings that can be passed on to consumers.
Those aren’t the only advantages, though. In the next article we’ll be taking a look at what these guys are doing, and the benefits that a bitcoin payment solution offers this rapidly growing industry.
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