Crypto and cannabis have captured the public imagination over the last year or two. Both are new, both are often profitable, and both pit emerging economies against existing regulations. Little highlights the line drawn between states’, federal and international boundaries like weed and cryptocurrency.
In 2018, seven states (Alaska, California, Colorado, Massachusetts, Nevada, Oregon, Washington) and the District of Columbia legally allow recreational usage of cannabis. Twenty-nine states (including the seven rec states) allow medicinal THC, and another 17 allow medicinal CBD.
Even in the four states (Idaho, Kansas, Nebraska, and South Dakota) where cannabis is completely prohibited, it’s typically only a misdemeanor to be caught with it. But federal laws still classify it as a schedule I drug, along with heroin, MDMA, and bath salts.
It seemed like the government was working toward rescheduling the drug during the Obama administration. On August 29, 2013, Deputy Attorney General James Cole issued what’s popularly known as the Cole Memo, which essentially deprioritized the prosecution of marijuana-related crimes. However, Attorney General Jeff Sessions rescinded this memo on January 4, 2018, calling for full enforcement of federal marijuana laws.
The move sent shivers through the legalized cannabis industry, as it was made clear legally operating dispensaries could find themselves shaken down by the Drug Enforcement Agency and Department of Justice.
Despite the heat being put on the cannabis industry, nearly a dozen cannabis-based cryptocurrencies have popped up since 2014. They’ve largely been ignored. Most recently, Future Farm Technologies, Inc., a Vancouver, BC-based cannabis company bought a 51% stake in FlipCoin. It’s not actually a cryptocurrency, but an app-based point of sale (POS) that connects to CoinBase to let customers purchase cannabis at dispensaries using their cryptocurrency of choice.
We’ll have to wait for its launch later this month to learn if FlipCoin gets adopted by the cannabis industry and its consumers. However, there are good reasons Future Farm believes it will.
The Shaky Relationship of Cannabusiness and Banking
Because it’s federally illegal, cannabis-based businesses must overcome several hurdles to obtain any banking services. After the Cole Memo, the Department of the Treasury FinCEN issued guidance for FDIC- and NCUA-insured financial institutions wishing to service the cannabis industry. Last month’s DOJ reversal has FinCEN reevaluating its rules.
This leaves cannabis companies at a major disadvantage. Carrying cash around isn’t a great idea – the industry raked in $9 billion in sales in 2017, and that much money would be bulky ($1 billion in $100 bills weighs 20,000 pounds!) and attract theft. Being unbankable also makes it more difficult to perform routine operational business processes like payroll.
Many banks already shunned cannabis businesses, and it looks like the situations is getting grimmer. Banks are afraid opening accounts with cannabis businesses would violate the Money Laundering Control Act of 1986. Doing so could cause them to be fined up to twice the value of the property involved in the transaction and imprisoned for up to 20 years.
HSBC recently got fined $1.9 billion for accepting $881 million in drug money deposits from cartels in Mexico and Columbia. So cryptocurrency is attractive to cannabis companies, but can FlipCoin solve their problems?
The Promise of FlipCoin – Crypto And Cannabis Finally Friends?
The major selling point of FlipCoin is the ability to instantly exchange cryptocurrencies between each other and into fiat currencies. Crypto and cannabis are, of course, no strangers. Bitcoin rose to prominence as the preferred method of payment for transactions on the dark web’s Silk Road marketplace. In fact, researchers at Qatar University published a report on January 23 showing how those Silk Road drug transactions could be traced through Bitcoin’s public blockchain ledger.
This level of transparency may scare people away from using crypto to buy shrooms from their local dealers, but the cannabis industry welcomes transparency. These businesses self-identify. They hold business licenses. Their every transaction is tracked by state regulators, and they pay their taxes like everyone else.
Because of this environment, cannabis-based cryptocurrencies have flooded the market. HempCoin is the current market leader, with over 230 million tokens in circulation and a market cap just over $40 million. PotCoin has over 219 million tokens in circulation and a market cap of over $34 million. It gained national attention in June 2017 by sending retired NBA star Dennis Rodman back to North Korea.
Paragon isn’t trailing far behind. The pot-based currency founded by former model and Miss Iowa Jessica Versteeg currently has a market cap over $20 million. Although (or perhaps because) Paragon partnered with rapper The Game for its ICO, many analysts doubt its viability. (We had a laugh at its expense, at one point.)
CannabisCoin takes things a step further by making its tokens redeemable for product, at a rate of one CannabisCoin for one gram of cannabis. At the current market value of $0.08 per CannabisCoin, that marks the cheapest gram you can buy anywhere in the world. The cheapest gram prices in the U.S. are just under $8 per gram in Denver and Seattle, according to Leafly.
Still, no cryptocurrency (even media darlings Bitcoin, Ethereum, and Ripple) has gained widespread acceptance among the cannabis industry. Volatile pricing structures and stringent government regulations make them nothing more than a fad at the moment.
If FlipCoin can break through and finally marry cannabis and cryptocurrency, more power to them. We just hope the execs at Future Farm don’t end up being implicated in money laundering schemes, especially if they end up taking CoinBase down with them. Cryoto and cannabis would seem to be an almost ideal target for the IRS… and Al Capone’s ghost is watching.