As mainstream, profitable, and technologically advanced as the cannabis industry has become in recent years, the struggle to access financial services is still one of the prevailing issues faced by business owners. It seems as though congress won’t provide any solutions on this front until they’re forced to do so via a federal legalization. But being the adaptive industry that cannabis is, crypto and NTFs are proving to be interesting legal alternatives to operating in all-cash.
The cannabis industry is complicated enough as it is, add to the mix trying to figure out financing solutions, and it’s enough to make you almost want to give up. Luckily, cryptocurrency and NFTs are offering unique alternatives to what once seemed like a dead-end road. Remember to subscribe to The THC Weekly Newsletter for more articles like this one and exclusive deals on flowers, vapes, edibles, and more! Also save big on HHC-O, Delta 8, Delta 9 THC, Delta-10 THC, THCO, THCV, THCP & HHC products by checking out our “Best-of” lists!
Without banking access, cannabis businesses are turning to crypto
It’s relatively common knowledge that banking is a big problem in the cannabis industry. Because marijuana is still federally illegal and dealing with cannabis cash could be considered money laundering, banks are naturally reluctant about working with the industry. That means everything including loans, lines of credit, payment processing solutions, and even basic bank accounts are off limits for canna-business owners.
A bill titled the Secure and Fair Enforcement (SAFE) Banking Act, which passed the House of Representatives last year with strong bipartisan support, would have finally allowed banks and financial institutions to service the cannabis industry. Unfortunately, the bill hasn’t seen much action since the beginning of 2020.
The lack of access to financial support has forced many cannabis businesses to deal in all-cash, which is not only inconvenient, but also dangerous. Thieves are aware that dispensaries have both, a lot of cash and weed on hand, and these businesses are targeted and robbed regularly. When this happens, it can be hard to file insurance claims for stolen cash and other products when the amount stolen can’t be proven.
Additionally, everything from paying rent to managing payroll becomes highly convoluted when you’re dealing with cash, and cryptocurrency can help resolve some of these issues. Cryptocurrency is decentralized digital money that’s stored on a blockchain technology system. Because crypto transactions aren’t regulated in the same way as standard banking exchanges, and the fact that it’s impossible to physically steal cryptocurrency and difficult to hack blockchain wallets as well, it makes sense that a growing number of companies are showing interest.
Cryptocurrency can benefit cannabis businesses in the following ways:
- Cash-free transactions: The ability to accept Bitcoin and other digital currencies in lieu of cash payments is a major benefit for cannabis businesses trying to move away from having large sums of money on hand or in their stores, homes, etc.
- Lower fees: Regarding the very few financial service companies that are actually willing to work with cannabis, they charge astronomical fees for being some of the only players in the game. Using crypto payments allows cannabis business owners – who are already paying ridiculous amounts of money in taxes, rent, and pretty much everything else – to at least save some money on payment processing fees.
- International transactions: For businesses that also sell merchandise, CBD products, and other items that can be shipped internationally, digital currency offers a quick and efficient way to accomplish this.
Downsides to crypto
As with everything, there are some downsides to using cryptocurrency in the cannabis industry. For example, crypto is taxed differently than income received through standard business transactions, like with credit and debit cards. This is in part because cryptocurrency is a somewhat new concept that still is not being heavily utilized by the general population, but also, because of the volatility of digital currency.
This can make it very costly and draining to manage transaction records because, not only does the business owner need to keep track of every single transaction conducted, but they will also need to make note of the value of cryptocurrency against their local currency at the time of the transaction. This is something that is both time-consuming when done correctly, and extremely difficult to go backwards and track if you weren’t doing so at the time the transaction was conducted.
In addition to being an accounting nightmare, another issue with these value fluctuations is that, if you sell a large number of items for a certain price in bitcoin, then find that the value drops dramatically a short time later, that could mean A LOT of money lost. In that same vein, the opposite could be true and you could end up with way more money than expected if crypto values go up. But ultimately, it’s a gamble that most business owners are not willing to take.
One option to remedy this issue is to use stablecoins, a type of digital currency comparable to the dollar, euro, or gold – in the sense that its price doesn’t vary so wildly. That provides a bit of stability and business owners don’t have to worry about their livelihoods being ruined if digital currency one day ends up being worth much less than expected. Also, you can immediately convert your stablecoins into traditional currency after each transaction, so essentially you can use it simply to avoid the cash dilema and transfer it straight to useable money within minutes.
What about NFTs and digital cannabis strains?
Now, here’s where things get a bit confusing. The concept of paying for real weed with digital money is becoming relatively understandable (although it begs the question of the true value of money when all of it can be digitalized anyway), but what about using digital money to buy digital weed? Welcome to the complicated world of NFTs.
To quickly explain NFTs as best as I can: Non-Fungible Tokens, or NFTs, are used to sell and grant full ownership over digital assets. Non-fungible refers to the uniqueness of the digital asset. Cash money is considered fungible because there is no difference between dollars… as in, a five-dollar bill can be easily exchanged for another five-dollar bill and no one would be the wiser. With NFTs, each one has its own unique metadata and identifier that is recorded on the blockchain, which tracks ownership and makes it impossible for one NFT to be exchanged for another.
Let’s consider a photograph, for example. First, you upload the image to one of the many existing NFT marketplaces, akin to Amazon or Etsy but for digital products. Then, you need to certify that the asset is original, a process known as “minting” that can usually be done with just a few clicks. And finally, you link your cryptocurrency wallet to your NFT account and list the asset for sale. To buy NFTs, the consumer would convert their money into USD Coins, Bitcoins, or Ethereum and buy whatever they want and can afford from the marketplace. Now, instead of receiving a printed image or downloadable file for limited use, they would be buying complete ownership over that photo. They would even be able to turn around and sell it themselves if they wanted to.
Now back to ‘digital weed’. Dubbed “Lava Coin,” it was created by Jessie Grundy, founder and chief executive of Peakz, an upscale cannabis brand based in Oakland, California. Unlike regular cannabis flower, the digital buds are globally legal and available anywhere in the world. But it’s not weed that you can can actually smoke, so what’s the point? The point, for many, is ownership over something that no one else has. You wouldn’t own a bag of weed per se, but you would own rights to that strain and those particular genetics. How much that’s worth depends on the strain and value placed on it by the industry, but it’s something interesting and distinctive no less.
“The reason why someone would want digital weed is the uniqueness,” said Grundy, adding that “blockchain-based proprietary genetics would settle at least one eternal question in the weed world: who came up with what strain, with the exact genetics identified, and who did it first.” That is also a very good point but one that applies to cultivators rather than consumers and the general public.
Back to the blockchain
Blockchain technology is a major factor in the success of both crypto and NFTs, and it’s also beginning to play a prominent role in the cannabis industry in sectors other than finance, such as seed-to-sale tracking. But what exactly is blockchain technology? Blockchain is a system of recording and exchanging information through a digital ledger of transactions. All inputted information is duplicated and distributed across the entire network of computer systems on the blockchain. Every time a new transaction is made, or every time a new step is reached in the production/distribution process, a record of that is added to each blockchain of every participant’s ledger.
Blockchain uses a decentralized database known as Distributed Ledger Technology (DLT), and it’s managed and updated by multiple participants. So, if this technology is used to track the life of a cannabis plant, each person involved in its production cycle would be adding information to the blockchain at every step – cultivators, labs, extractors, distributors, and so on. Transactions are recorded with an immutable cryptographic signature called a hash, and everyone using the chain has access to these updates.
This means that it would be immediately noticeable if any block in the chain is tampered with. If someone wanted to hack the blockchain, they would have to change every single block in the chain, across all recorded versions of the chain. The blockchains that are used more heavily are constantly growing and being distributed to more and more users, making them nearly impossible to corrupt as they expand.
People are also drawn to the dispersed natured of how blockchains are managed. Most standard databases, such as an SQL database, have an individual or group of individuals in charge of data and operations. The concern is that it could lead to conflicts of interest where said individuals may hack the ledgers and make changes that could give them monetary bonuses. With blockchains, no single person is running the show, and the entire system operated by the people who use it. The transparency and resiliency to hacking makes blockchains a legitimate disruptor for many industries, including cannabis.
Final thoughts on cannabis, crypto, and NFTs
Pretty much all the topics mentioned in this article are relatively new concepts and industries. Cryptocurrency, blockchain technology, NFTS, and the entirety of the cannabis industry are all still in their infancy, only having been discussed with more seriousness over the last five years or so. There is a lot of room for growth in all of these sectors, and because one side of it deals with financial transactions and the other side is a metaphorical gold mine, it makes sense that cannabis and digital currency will end up expanding more together.
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Disclaimer: Hi, I’m a researcher and writer. I’m not a doctor, lawyer, or businessperson. All information in my articles is sourced and referenced, and all opinions stated are mine. I am not giving anyone advice, and though I am more than happy to discuss topics, should someone have a further question or concern, they should seek guidance from a relevant professional.