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Can cryptocurrency solve cannabis industry's financial woes?

Tony Zerucha

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The following is a guest post by Serge Chistov, the financial partner for the Honest Marijuana Company.

With new industries come new ideas around banking

Marijuana is a growth industry, both literally and figuratively, but it’s been difficult for the financial establishment, namely the banking industry, to wrap its head around it. Banks have been reluctant to associate with the not quite mainstream drug business, despite its manifest profitability.

A growth industry that will take time for the financial establishment to normalize

Likely, it’s the fear of entanglements with the federal government that has the strongest hold on banks. After all, while many states have legalized marijuana and the businesses that go with it, on a federal level, it’s still illegal. Since banking is regulated federally, that presents a conflict.

Current banking reality for the cannabis industry

Serge Chistov

While the cannabis industry remains a federally prohibited practice and banks mainly rely on the FDIC as a way to secure their assets to the depositors, there will continue to be some level of conflict. However, there are small and regional banks that are looking for alternatives to the FDIC insurance and to instead go with additional rigorous ways of conducting their due diligence and investigations of the underlying businesses. That gives them the opportunity to actually conduct that business.

Some banks are getting involved with the marijuana industry because they simply can’t ignore it. They are looking at the billions of dollars in cash or otherwise flowing through the system, which are always collected by banks that are willing to do the extra work. Right now, more and more banks have an appetite to increase their earnings, deposit-base, and bottom line. If they want to grow these areas, they will open their doors to this industry.

As the cannabis industry becomes more regulated, the comfort zone of banks and other financial institutions will increase. There is no doubt of the usefulness of marijuana, from a medical perspective, and that will lead to a normalization about its consumption by the public at large, and the businesses that back it up.

Will cryptocurrency become the solution if standard banks won’t play?

The seemingly obvious solution for cannabis dispensaries would be to go off the federal financial grid and opt instead to work in cryptocurrencies but that’s not likely to become a reality in the immediate for a couple of reasons:

  1. Banks are becoming more open to working with dispensaries and that eliminates the need to get involved in the more volatile cryptocurrency market.
  2. While cryptocurrency is better than cash, which can become difficult to manage and protect, there isn’t a demand for it yet from the customer point of view.
  3. If and when there is a demand by customers, dispensaries using cryptocurrency will also be looking for those clients to focus in on one or two currencies at most, so the costs don’t become overwhelming for the dispensary.
  4. As the cannabis business becomes more mainstream, banks are considering options such as reverse ATM transaction, in which the payer puts money into an ATM machine and the bank then transfers it to the intended recipient.

The future of the cannabis business

With normalization, the public will eventually have access to cannabis strains that work on different levels. For example, some strains will operate like the Ambiens, a drug produced by the big pharmaceutical companies; there will also be strains that are more like Tylenol PM and will be perceived as something that will help with minor aches and pains. Over time, cannabis product be available over the counter in little points of sale, across the country. With this reality in play, the financial industry will come on board.

 

Serge Chistov is the financial partner for Honest Marijuana Company, which utilizes all-natural cultivation methods to produce only the finest organic and eco-conscious cannabis products. Their marijuana is packaged in Earth-friendly recyclable tin cans with pure nitrogen to ensure only the highest level of integrity and quality. Mr. Chistov is well versed in all aspects of the marijuana industry having been involved in the development and launch of Honest Marijuana Company. He regularly contributes on political, economic and financial insight as they relate to the cannabis industry.

Tony Zerucha

Tony Zerucha is an alternative finance journalist with more than seven years experience in the space. The author of more than 1,000 articles, Tony was named LendIt's 2018 Journalist of the Year.

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