Observing the Digital Trend of the Legal Cannabis Market

Despite being a multi-billion-dollar industry, cannabis retail is uniquely characterized by its reliance on cash to execute transactional payments. Owing to the federally prohibited status of cannabis and cannabis products, banking institutions incur significant legal risk upon acting as transactional intermediaries. The cash-only model serves as a hindrance to cannabis retail businesses in various capacities. The flow of large cash volumes has subjected cannabis retailers to repeated armed robbery attempts, spanning numerous states. Cannabis retailers are also targeted by law enforcement in certain jurisdictions and are subjected to civil asset forfeiture. Moreover, cash acquisition can be burdensome for customers as ATM fees are inconvenient, and many people are not accustomed to carrying sizable quantities of cash in modern times. Lastly, cash-only transactions can muddy financial reporting and obscure cash flow reporting without intensive oversight. For years, payment processors and dispensaries alike have brainstormed methods for accommodating non-cash payment methods. Some locations are accepting debit cards via a transactional process that mimics an ATM withdrawal, including the transaction fee.

Armed robbery has posed a significant threat to the safety and well-being of dispensary workers and clientele since the beginning of cannabis legalization. However, in recent years, there has been a tremendous uptick in the quantity and severity of armed robberies of cannabis dispensaries throughout the nation. This phenomenon has created unsafe work environments for many cannabis retail workers while impacting the profitability of dispensary owners and placing pressure upon local and state jurisdictions to enact legislation to address these growing concerns. (Freisthler).

Armed intruders aren't the only threat to the revenue of cannabis dispensaries. In San Bernardino County, the Sheriff's Department made headlines for having confiscated over $1.1 million from cannabis dispensaries by pulling over armed transport vehicles for minor infractions and seizing the cash as drug money or laundered money. The seized assets are turned over to the FBI, and the Sheriff's Department keeps a kickback, sometimes totaling up to 80% of the cash value. (Marchese, 2022). This corrupt practice is specific to certain jurisdictions yet still represents one of the many complex problems arising from the cash-only model of cannabis legalization.

Federal measures such as the SAFE banking act address concerns surrounding the cash-only nature of cannabis retail. Still, some forward-thinking cannabis dispensaries are looking to cryptocurrency to dissolve the currency barrier. The US Senate has yet to greenlight the SAFE act, further perpetuating the stonewalling of cannabis banking. As pressure mounts to curtail profit loss, dispensary owners are realizing the importance of taking immediate action.

Certain dispensaries have tested the waters of crypto transactions, including the People’s Remedy Dispensary in California. The People’s Remedy uses Anypay as a third-party payment processor to conduct crypto transactions in a retail setting. The funds transfer is a multistep process in which the customer first selects the funds to be transacted. Second, the processing platform provides the most recent conversion between crypto valuation and the market value of the purchase. Once the payment is sent directly to the merchant, the merchant can then choose to store the crypto, or convert it into local currency and transfer it to a bank account. (Remedy).

For dispensary owners, the speculative value of cryptocurrency presents yet another possible advantage to using crypto-based transactional payments. Upon rising inflation rates in recent years, the long-term ascension in value of popular cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin presents lucrative potential. This poses unique implications for the prospect of a forthcoming industry of legalized cannabis, which is also predicated on the valuation of cryptocurrencies. Derrick Horton, Anypays CEO, said in an interview with Bitcoin.com News, ”I knew it was a match right away because they [The People’s Remedy] actually want to keep the coins. Too many people contact us and ask to convert to fiat. BOOORING! We only want to work with people who want to keep and use the coins for business.” (Goschenko, 2021).

With regard to the ease of financial reporting, the blockchain boasts the feature of being transparent and widely accessible. Cryptocurrency transactional payments engrave permanent and immutable data on the public blockchain, which assists the process of financial data reporting while also verifying transactional authenticity.

The utilization of blockchain transactions in the cannabis industry is not without risk. Primarily, volatility threatens the consistency of revenue and financial planning, while the complex regulation of cryptocurrency is liable to change, which affects tax reporting. Since cryptocurrency is taxed differently than fiat currency, dispensaries are responsible for recording the valuation of the electronic currency versus the US dollar at the time of the transaction, making the utilization of crypto-transactions more costly and complex. Nevertheless, the potential benefits of non-cash transactions can outweigh the drawbacks, especially for dispensaries that are perpetually victimized by theft and burglary. Ultimately, the solution to the limited transactional capacity of cannabis retailers will require attention from federal policymakers. As various forms of legalized cannabis access continue to span the majority of states in the US, generating billions of dollars in revenue, it becomes more urgent to address in rational and responsible ways.

References

Freisthler, B., Gaidus, A., Tam, C., Ponicki, W. R., & Gruenewald, P. J. (2017). From Medical to Recreational Marijuana Sales: Marijuana Outlets and Crime in an Era of Changing Marijuana Legislation. The journal of primary prevention, 38(3), 249–263. https://doi.org/10.1007/s10935-017-0472-9

Goschenko, S. (2021, May 9). California cannabis chain people's remedy starts accepting cryptocurrencies as payment. Bitcoin News. Retrieved May 14, 2022, from https://news.bitcoin.com/california-cannabis-chain-peoples-remedy-starts-acce pting-cryptocurrencies-as-payment/

Marchese, N., & Hauenschild, J. (2022, February 18). Crypto could protect local cannabis businesses. Orange County Register. Retrieved May 14, 2022, from https://www.ocregister.com/2022/02/18/crypto-could-protect-local-cannabis-businesses/amp/

California cannabis chain people's remedy starts accepting cryptocurrencies as payment. Yahoo! Finance. Retrieved May 8, 2022, from https://finance.yahoo.com/news/california-cannabis-chain-people-remedy-0929 00601.htm