When it comes to starting a cannabis business, one of the most difficult setbacks is limits to banking. While medical cannabis is legal in 36 states and allowed for adult use in 18 states, the District of Columbia and territories, banks are unlikely to offer their services to cannabis companies as the plant remains illegal on a federal level.
Due to federal law, the sale and distribution of cannabis remains prohibited. Even if state and local laws say otherwise, banks pose too much of a risk. Cash made from a cannabis business can be considered laundered money.
In fact, this is part of the reason many dispensaries only accept cash. Similar to banks, credit card companies and payment processors are simply trying to avoid federal legal issues.
While lawmakers are trying to work around this with a cannabis banking bill, most companies aren’t waiting around. And they’re turning to crypto currency in order to meet the rising demand of the cannabis industry.
Admittedly, cannabis companies can still operate on a cash-only basis. However, there are a number of difficulties with this, including a higher probability of being robbed or difficulties in filing for insurance claims. With that, a digitized money platform is much more ideal – especially for big cannabis businesses that have a lot of money coming in and out.
Cryptocurrency exchanges allow for businesses to be similarly regulated as banks without the intrusion of federal law. When a cannabis company opens an account with cryptocurrency, they’re garnering cash-free transactions, lower fees, security, and international transactions.
While cryptocurrency provides a number of benefits, they unfortunately aren’t perfect. For example, a cryptocurrency is taxed much differently than standard business income. Since the value of a cryptocurrency is constantly changing, businesses are required to track this value alongside all the transactions they make. Obviously, this requires extra time and costs that aren’t necessary for standard bank transactions.
Not to mention, there’s less stability in the crypto market. What has high value one day could have low value the next. For example, if you sell something worth 0.1 Bitcoin, the price can drop dramatically without any warning and, naturally, cause a lot of financial problems on your end.
Luckily, businesses can opt for what’s known as stablecoins which have similar value measures as the US dollar. Not to mention, most businesses are well aware of the irregularities in the cryptomarket and tend to convert crypto into fiat currency as soon as they finish a transaction.
Still, Crypto Has A Lot of Possibility for Cannabis
While there are a lot of difficulties with cryptocurrencies, their industries are very similar in the sense that both have only recently entered mainstream and regulations remain in the air.
Not to mention, cryptocurrencies can still help cannabis businesses with their financial services. Most notably, by allowing them to be less reliant on cash and more reliant on a digital payment system.
Furthermore, for the riskiest entrepreneurs, there is an option to pull out a crypto loan. It’s given that these provide a number of other hurdles that the average business loan doesn’t have to worry about. However, it also provides newcomers of this industry with a shot at fighting the competition.
Since the majority of banks won’t grant loans to cannabis companies, most people who get into this industry already have plenty of capital under their belt. In fact, some have gone as far as to say that this lack of equity within the industry has pushed out people of color from their chance at starting a business.
Cryptocurrency doesn’t offer the most lavish means of breaking down these financial barriers. But it does offer more fair opportunities for people to enter into the marketplace.