The Pros and Cons of Cannabis and Cryptocurrency

If you’ve been in the cannabis industry for a while, you’ve
probably heard one or both of the following statements on multiple occasions:

• Cryptocurrency is the solution to the cannabis
  industry’s banking problem.
• Cryptocurrency will destroy the cannabis
  industry.

Which statement is accurate? Should cannabis businesses that
can’t get traditional bank accounts with affordable rates be looking at
cryptocurrency to decrease their need for cash-based transactions?

The answer to that question depends on who you ask. People
in the traditional banking sector warn of the dire risks inherent in crypto
while cryptocurrency professionals hype the safety and lower fees that come
with digital currency.

Let’s examine both arguments to learn the pros and cons of
cannabis and cryptocurrency from an expert on each side of the debate.

Pros of Cannabis and Cryptocurrency

Cryptocurrency provides another payment option for cannabis
consumers that doesn’t involve cash which makes it an attractive solution to
the cannabis banking problem. “Many cannabis companies can’t do business except
in cash,” says Wil Ralston, President of SinglePoint,
a mobile payment technology provider that is developing crypto wallets
specifically for cannabis purchases. “Cryptocurrency gives them another payment
system that is safer than lugging cash around without a bank account.”

Ralston explains that the crypto space provides a way for
cannabis businesses to safely and securely transact without the high
transactional costs and bank fees that banks and payment processors charge to
offset the risk and additional reporting they’re required to do by law for
cannabis clients.

Still, the cryptocurrency market has become synonymous with risk
after the Bitcoin bubble burst in 2018. “There is volatility in crypto,”
explains Ralston, “but using stable coins can reduce that volatility and risk.
Stable coins are pegged to the U.S. dollar.” It’s a tether system so every coin
will have a USD backing it. According to Ralston, the goal is to minimize
volatility so there is some kind of stable asset backing the cryptocurrency.

For cannabis businesses that want to use cryptocurrency and
accept it from their customers, Ralston recommends that they begin with
education. “Get a consultant or employee who can give you an overview of the
market, guide you, and get everything set up,” says Ralston. “You need to
crawl, walk, and then run. Test transactions for a month. Learn if you and your
most loyal customers like it, make any changes you need, and then roll it out
to all of your clients.”

Education is needed not just for cannabis businesses and
employees but also for customers. Ralston explains, “99% of customers don’t use
cryptocurrency, but if a cannabis business owner wants to get at least some of
their transactions to be non-cash, they need to set up a crypto option, educate
customers, and incentivize them to increase user adoption. Set a goal to get 10-20%
of customers to noncash.”

Cons of Cannabis and Cryptocurrency

In March 2019, there were over 2,000 cryptocurrencies, but
about 1,000
cryptocurrencies had failed by July 2018. Similarly, more than a dozen
cannabis cryptocurrencies have emerged in recent years including PotCoin,
CannabisCoin, HempCoin, Tokes, and GreenMed. Some of these cannabis
cryptocurrencies are still in operation while others have already disappeared.
A lack
of regulation and initial coin offering (ICO) scams are just two of the
most common reasons cryptos fail.  

Jordan Friedman, CEO of Zodaka,
a payment solution technology company for high risk industries like cannabis,
believes there are two primary reasons why cryptocurrency won’t solve the cannabis
banking problem. “Beyond the structural problems of cryptocurrency, there
is a cardinal problem,” says Friedman. “With crypto and cannabis, you’re
combining two industries with the most uncertain and changing regulations. You’re
trying to sync up two big concepts that are on their own courses and have their
own problems, so a big core problem is the industries are moving too fast
legally to work well together.”

The second problem Friedman cites relates to regulation and
volatility. “Regulation in crypto is essentially nil,” shares Friedman, since
cryptocurrencies aren’t regulated, tracked, or backed by a government authority
(i.e., fiat currencies like the dollar, yen, or euro that are legal tender).

“The only way to do what needs to be done for the cannabis
industry is to use stable coins, and the only companies that do good, stable
crypto are institutional. Even a stable coin needs something backing it to keep
it stable. A stable coin pegged to the U.S. dollar still fluctuates from 0.80
to 1.20. That’s a 40% swing either way, so stable is not a solution.”

For cannabis companies that are willing to take the risk
that comes with cryptocurrency backed by stable coin, Friedman recommends asking
three questions: 1) Are you an institution? 2) What is backing it? 3) Are you
willing to work with cannabis?

“The idea of who’s behind cryptocurrency is really
important,” says Friedman. “It’s good to add different payment options, but
when you choose the one with price fluctuations and you don’t know all of the
people behind the layers of the system, you’re taking on a lot of risk. Why add
risk to a cannabis business if you don’t have to?”

The Key Takeaways

Is cryptocurrency the solution to the cannabis banking problem?
Ask two different people, and you might get two very different answers. Ask
them a few years from now, and their answers might change dramatically.

The truth is it’s too early to tell. Both cryptocurrency and
cannabis are new and evolving. Neither was built for the other, but that doesn’t
mean they can’t work together in the future. Only time will tell.

Bottom-line, each cannabis business needs to do their own homework
and choose the payment options that match their risk tolerance levels today while
we wait for Congress to make it easier for cannabis businesses to work with
traditional banks and payment processors. At that time, cryptocurrency may just
become a viable alternative payment option for cannabis businesses and
customers, but it’s unlikely to be the only
solution to the cannabis banking problem.