Bank-discriminated Legal Marijuana Industry Opts For Bitcoin

News and Analysis

In the U.S., four states have already legalized recreational marijuana, namely Alaska, Colorado, Oregon, and Washington alongside with Washington D.C. While the business is completely legal there, and is mostly dedicated to medical purposes, American federal laws still consider marijuana businesses illegal.

For that reason, American banks are very reluctant in providing their services to Mary Jane operators. The thing is that the banks are obliged to comply with federal laws in the first place. However, while they may accept money originating from a pot, they still have to carry out prolonged procedures ensuring their compliance. Banks are at risk of losing their charter in case they fail at least in one step of the compliance procedure, so they mostly prefer to reject marijuana-based businesses completely, as the possible revenue they may obtain is negligible against the risk of losing everything.

This effectively leaves only two options for U.S. pot operators to handle their funds. They either may operate as a cash-only business, which most of them actually do, or deal with digital currencies, that are mostly unregulated and require no compliance procedures so far.

A Canadian company Mega Chill started selling marijuana for bitcoins, and even uses its own bitcoin wallet instead of having recourse to some processing services. U.S.-based companies also prefer virtual currencies, however, some of their turnover is inevitably fiat. However, maintaining such a business is a risk of its own, so the emerging legal marijuana market welcomes the emergence of supporting businesses, like marijuana security companies.

Those security firms have to comply with the inherent features of marijuana businesses. For instance, a Colorado-based company Security Grade Protective Services specializing in protecting medical marijuana businesses even started charging their fees in bitcoins, as digital currencies are the payment means of choice for such companies. In Colorado, people are allowed to grow, use, sell, buy, and make presents of marijuana.

The preferability of virtual currencies in legal marijuana on the background of banking policies eventually resulted in creation of several concepts of cryptocurrencies specifically designed for financial operations involving marijuana.

First of them, so-called CannabisCoin, is offered as a payment solution for legal marijuana sellers. The currency is backed with real Mary Jane, with one cannabiscoin being worth one gram of medical cannabis. Another one, so-called PotCoin, is not backed by the actual product, but is designed as a payment means for legal operations with marijuana around the world. Currently, accepting payments in potcoin are about 40 companies listed on the altcoin’s official website. Finally, there is MaryJaneCoin, which technically is of little difference with the previous two, and offers related services like tutoring for newbies or more attractive design.

With marijuana illegal in numerous jurisdictions, within the U.S. and beyond, cryptocurrency-based solutions become viable for marijuana sellers. Such companies actively employ virtual money in their expanding businesses. However, even though marijuana coins easily gain some kind of a cult following, bitcoin remains the basic option for legal marijuana firms.

In most cases, marijuana is legalized not fully, but as a medical prescription for certain conditions. Basically, it is prescribed for those ill with cancer, or in the course of psychotherapy.

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