Bitcoin Solutions for the Marijuana Industry
Transparency is an issue for every business, whether or not using Bitcoin
Banking vs. Bitcoin: There are currently 375 financial institutions accepting merchant accounts from marijuana-related businesses (or MRB’s, in the world of financial acronyms). These merchant accounts are neither widespread nor easy to establish. MRB’s are considered “high-risk” accounts, subject to stricter compliance and monitoring than other legal businesses, and pay higher fees for merchant services, which do not extend to loans or lines of credit. All too often, owners do not qualify for accounts: in an industry emerging from a “criminal” past, individuals and businesses are turned away after failing background checks.
Deposits from these highly-scrutinized accounts are only a fraction of the total dollar volume of marijuana-related sales entering into the banking system. Many accounts are “hidden”, registered as businesses not involved in the marijuana industry. Banks flag suspected accounts and report these to Federal Authorities, but it’s an ongoing cat-and-mouse game. Until the Federal Government creates regulations, banking will continue to be an issue in the industry.
Forced to choose between high-fee, highly-scrutinized, merchant accounts versus “hidden” accounts conducting business illegally, some marijuana businesses are avoiding banks entirely. But these companies are no longer conducting business only in cash. The gap between legal and illegal banking is also being filled by Bitcoin solutions, where transactions bypass the banking system entirely.
Bitcoin vs. Banking: Bitcoin (BTC) can be bought using cash, credit cards, or electronic bank transfer, and then be used to purchase goods/services direct from the merchant. The BTC transaction is not a “marijuana transaction”, or buying and selling marijuana, but effectively becomes a value transfer between buyer and seller. Instead of using cash, customers pay using BTC via a Bitcoin wallet (app).
The fees for using BTC are low: 1) the Bitcoin network charges a “mining fee”, an average of 0.0001 BTC, which costs about 6 cents today, regardless of how much BTC is transferred; 2) most Bitcoin processors offer low fees, earning a small percentage on the market exchange (buy vs. sell rates) of Bitcoin and/or arbitrage.
BTC is being accepted across the country for online ordering/marijuana delivery services, and is easily setup via website plug-ins that can integrate Bitcoin as a checkout option. BTC is also available inside stores via ATM’s (called BTM’s): the onsite BTM accepts cash and sells Bitcoin, delivered to a customer’s Wallet app. BTM’s can be used to purchase in-store gift cards, or issue vouchers. The earnings are typically shared with the host of the BTM (the store it is located in). BTC is also being used for transactions involving marijuana sales between growers and marijuana dispensaries/retail stores.
Some Bitcoin payment processors offer a full suite of merchant solutions, including Bitcoin POS systems or existing POS integrations, debit card readers, mobile swipe, and some offer same-day currency transfer/cash settlement (via ACH transfer into an account).
There have been questions whether Bitcoin offers an adequate degree of transparency for the marijuana industry, given the tangled web of laws the industry is faced with. Transparency is not an issue – the block chain is a digitally-encrypted ledger that records everything, and merchants can produce a full account of their BTC transactions. Owners who use BTC to hide the nature of their transactions are acting no differently than owners using hidden accounts within the banking system.
But by no means does Bitcoin offer a complete solution to the marijuana industry’s banking woes. Bitcoin, like many financial instruments, has seen its share of fraudulent dealers, although there are reputable providers, as well as organizations dedicated to exposing fraud in the space. A bigger issue is widespread acceptance – both in regards to comfort on the merchant side that BTC is secure and convertible, and consumer awareness and uptake. Still, conditions within banking today might drive more marijuana businesses to look toward Bitcoin solutions. If the Federal Government waits too long to create banking regulations for the marijuana industry, they may in the end discover owners who have resolved the issues by themselves.
For more information:
Marijuana Media is offering a FREE webinar covering “How Money Moves” in the marijuana industry, including cash, banking, credit cards, payment processing, as well as Bitcoin solutions. Please register for the webinar via the following link: REGISTER NOW.
The 2nd annual Crypto-Cannabis Conference 2016 will be taking place in Denver, on October 21-22, with free passes to marijuana business owners looking to learn about Bitcoin solutions. Information about the conference can be found at https://www.cryptocannabisconference.com/schedule/ or you can REGISTER HERE.