When you think of the marijuana industry, you probably picture a standard retail shop with a colorful interior, numerous storage jars filled with cannabis strains, and big-picture windows to enjoy the view outside.
Over time in this rapidly expanding industry, banks have become more lenient about working with marijuana companies. However, certain risky aspects of the business still make it challenging for cannabis dispensaries to collect cash and open bank accounts. The use of cryptocurrencies is an attractive alternative that offers many advantages over traditional financial services.
Cryptocurrencies can be purchased with credit cards, fiat currencies, and many other forms of conventional payment systems. Buyers can use cryptocurrencies to buy products of their choice at dispensaries without going through the hassles. Sellers can also convert crypto into fiat at crypto exchanges.
High Transaction Fees
Brick-and-mortar dispensaries charge an average of 3% for card payments, a number that can rise to as high as 6% for small businesses. But more than just being expensive, the stifling fees have led to some dispensary owners not accepting credit cards at all.
Instead, they’ve turned to cryptocurrency—which is free (or near-free) and secure. At most dispensaries that take crypto, consumers pay with Bitcoin or Ethereum. In return, they’ll receive a receipt of sale, which will allow them to claim their goods—so long as they don’t lose them!
Some dispensaries are also exploring the possibility of implementing blockchain technology so that transactions are processed faster, but at this point, most accept traditional crypto transactions.
Credit Card Processing Issues
Credit card processing issues are a problem in the industry because credit card processors, who handle transactions between banks and merchants, refuse to work with cannabis businesses due to their similarity (in the eyes of federal law) to drug cartels. This means that the cannabis industry has been unable to piggyback on federally regulated banking systems or financial tools like Visa and Mastercard.
The result is an all-cash business in which companies must pay all expenses (including employee salaries) in physical cash, which presents obvious security concerns for employees carrying around large sums of money and for business owners storing large amounts of cash on site.
One solution is for cannabis businesses to open accounts at local credit unions or community banks, but such institutions are also barred from working with cannabis companies by federal law.
The solution has been (for some states, most notably Colorado) to create state-chartered banks and credit unions that can work with marijuana companies as long as they follow certain rules (for example, they must document where every dollar comes from). Such institutions, however, still can’t access the federal banking system since it’s against federal law for any institution knowingly to facilitate drug trafficking.
Lack of Banking Services
Perhaps the biggest issue the cannabis industry faces is a lack of banking services. In dealing with a federally illegal substance, it’s not unusual for banks to decline to provide banking services to marijuana businesses—and in fact, most major banks won’t do so.
For example, Bank of America and J.P. Morgan Chase are federally insured, which means they would be subject to federal prosecution if they were caught providing banking services for marijuana businesses.
With many marijuana companies being forced to operate as cash-only businesses (which can be risky), states have begun looking into ways to provide financial services for these industries through public banks or credit unions.
Government Regulation
The root of the problem is that cannabis businesses are still illegal on a federal level. While state-legal cannabis businesses can operate openly in their respective states, they are still prohibited from using banks and financial institutions because both are federally regulated; thus, they must operate on a cash-only basis. The repercussions of such bans could be dire for financial institutions.
Any bank caught facilitating an illegal cannabis business operation may face charges, including losing its insurance or even being shut down by federal authorities. In response to these potential consequences, many banks have simply chosen not to work with cannabis businesses at all rather than legal risk trouble—and this is why so many legal dispensaries don’t accept credit cards. You may notice that crypto-currency doesn’t fall under this umbrella of federal regulations.
The marijuana industry needs crypto. The two are a natural fit – crypto is the future, and the marijuana industry has no alternative but to adopt it as a means of payment.
From our perspective, Bitcoin is already playing an important role in providing financial services to this community, and we see tremendous opportunity for further adoption of Dash as well. Dash offers the same user experience that Bitcoin does, with additional features for business payments such as instant settlement and low fees.
In fact, we’ve seen several merchants in Washington state start using Dash because of its superior settlement speed over other digital currencies like Bitcoin and Ethereum.