How Cryptocurrency And Cannabis Go Hand In Hand
While cannabis use for medicinal purposes is legal in 36 states, financing is still an obstacle that cannabis companies continue to face.
Even in states that offer medicinal and/or recreational use of cannabis, where possession and distribution are legal, traditional banks and other sources of financial backing haven’t quite caught up to the demand, as they are still subject to federal legislation.
It’s helpful for cannabis purveyors to understand the structure of traditional banks to get a better sense of what challenges and potential pitfalls can hinder new financing.
The Divide Between Banking Regulations and Cannabis Laws
Banks and loan companies associated with traditional financing are highly regulated. They have strict protocols for vetting companies. This is especially true of new industries and cash-heavy companies.
Because cannabis is still illegal federally, many cannabis companies cannot accept credit cards. With an influx of cash, a cannabis company may get flagged as a potential money-laundering risk automatically.
Financial firms also have legal departments dedicated to ensuring that employees are complying with all types of federal and state laws. They tend to err on the side of caution to protect the company against any legal action.
As cannabis laws continue to evolve, and because there are different stipulations from state to state, banking firms may be wary of getting involved in cannabis businesses when the landscape of legislation is still in flux.
The same goes for credit card and payment companies. They may be more hesitant to be the intermediary between a cannabis business and a customer, which means that companies have typically shied away from providing payment services.
Cannabis financing may eventually catch up with the legalization and become a more open field. There is even a new cannabis banking bill on the horizon that could potentially make things easier in the future.
Crypto to the Rescue
In the meantime, cannabis companies and startups are turning to cryptocurrency for their banking and startup capital needs.
Cryptocurrency exchanges do not face the same regulations or regulating bodies that banks do, so it’s easier for cannabis businesses to open accounts with them.
Crypto also offers greater freedom in financing. There may be lower fees and faster transactions when working across states or internationally. Plus, digital currencies can help cannabis companies move away from being cash-heavy businesses.
Still, cannabis business owners should proceed with a degree of caution. Just as banks are wary of unknown future changes in laws and regulations, business owners have their own concerns.
Tax consequences are an important factor, as cryptocurrencies are taxed differently than other forms of currency.
Tracking transactions for accounting purposes can also be more time-consuming and potentially more costly due to the extra labor and attention involved. Crypto can also be more volatile than other forms of currency.
With the freedom that cryptocurrency offers to cannabis companies, many business owners are willing to take on these unknowns, so they can keep their businesses moving forward.