Cannabis companies are turning to the world’s most popular digital currency in an effort to get rid of all of that cash.
The inability to access traditional financial institutions is one of the marijuana industry’s biggest impediments. Legal cannabis was a $6 billion industry last year and is expected to grow to $50 billion by 2026, according to Cowen & Co. But because pot is illegal under federal law, big banks and credit-card companies steer clear. That’s forced most merchants to accept cash only, a logistical headache and constant security threat.
Enter bitcoin, the cryptocurrency that consists of digital coins “mined” by computers solving increasingly complex math problems. At least two financial-technology startups, POSaBIT and SinglePoint Inc., use the cryptocurrency as an intermediate step that lets pot connoisseurs use their bank-issued credit cards to buy weed.
“There’s no industry — whether it’s the production and sale of cannabis or the production and sale of a cup of coffee — that can operate safely, transparently or effectively without access to banks or other financial institutions and traditional services,” said Jon Baugher, co-founder of POSaBIT, whose technology is used by 30 dispensaries in Washington state. “That’s where we thought we could leverage the use of digital currency.”
While the early bitcoin adopters are claiming success, the currency still has a long way to go before it gains wide acceptance. For many in the legal weed industry, the virtual currency’s association with illicit drug dealing on the so-called dark web is a big drawback.
It may only be a matter of time before pot dealers have an easier solution. The reluctance of banks to handle pot transactions will probably subside before the digital-currency solution has a chance to take off, said Jeffrey Zucker, co-founder and president of Green Lion Partners, a strategy firm focused on early-stage development in the cannabis industry.
“The banking issues are going to be solved in such time that the people in this industry are going to gravitate toward traditional banking,” he said.