Marijuana Industry Embraces Bitcoin as Workaround to Banking Problems

By:
Chris Gaetano
Published Date:
Jun 13, 2017
Bitcoin

The multi-billion dollar legal marijuana industry is increasingly turning to the digital currency Bitcoin as a way to access financial services from which they'd previously been barred, according to Bloomberg

While recreational marijuana is legal in eight states, and medicinal marijuana legal in 29, the industry's ambiguous legality when it comes to federal law has resulted in challenges that few other businesses have to face, one of which is lack of access to banking services. As discussed at the NYSSCPA's Marijuana Symposium last December, many banks won't deal with marijuana industry customers, as doing so requires extensive paperwork that most institutions feel isn't worth it. On top of this, the Federal Reserve does not let marijuana businesses access its system, and the Federal Deposit Insurance Corp refuses to insure their accounts. This, in turn, forces the industry to rely more on cash, which necessitates other expenses like armed guards and armored cars. 

Credit card companies, said Bloomberg, have also been avoiding getting too involved in the burgeoning industry, which further limits its ability to grow. In light of this, financial technology startups have begun using Bitcoin as an intermediate step to letting people use bank-issued credit cards to buy weed. Customers use their credit cards to buy the digital currency, which is then given to the store in exchange for marijuana. The store then sends the bitcoin to the processor, who converts it to U.S. dollars and deposits it into the dispensary's bank account (minus a transaction fee). 

Bloomberg notes that while such processors have been growing rapidly, the industry, for now, remains primarily cash-based. This is due to a combination of the currency's association with illicit transactions a turnoff, and people not fully understanding how it works. Bloomberg added that it's more likely that, as the industry grows, the reluctance of credit card companies and banks to deal with the industry will subside eventually, making the digital solution more of a stop-gap measure. 

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