By Chris Walsh
Dispensaries are getting inundated with pitches from companies offering services that “solve” the industry’s banking and payment-processing woes.
The latest solution being touted as a panacea: digital currencies such as Bitcoin.
On Thursday, we wrote about the emergence of PotCoin, a “cryptocurrency” targeting medical marijuana dispensaries as well as recreational cannabis stores in Colorado and Washington State.
That followed an announcement on Monday that two companies have teamed up to provide Bitcoin ATMs in medical marijuana dispensaries. Another firm recently entered the digital currency market, saying it wants to become the “premier billing platform for the medical marijuana industry.”
These companies tout digital currency as the perfect option for an industry that can’t land traditional bank accounts or accept credit card payments and must deal largely in cash.
But is it really a viable solution?
Reputable payment professionals are skeptical, to say the least.
“I’d rather bank out of a trash bag in my closet than use Bitcoin or a Bitcoin ATM,” Michael Rupkalvis, president of payment processing firm The Transaction Group, told us.
Rupkalvis – a veteran of the credit card industry whose current company has worked with hundreds of dispensaries – cautions MMJ businesses about using any type of digital currency at this time, be it Bitcoin, PotCoin or whatever else may emerge.
While there are some benefits, the list of potential drawbacks is overwhelming:
– The real-world value of digital currencies can fluctuate wildly. Bitcoin prices – which are determined by supply and demand – have tumbled by 50% since November.
– The risks are enormous, as the currency is not recognized – and therefore not insured – by the U.S. government, meaning there’s no protection for cannabis businesses or patients should it collapse.
– Digital currencies are still not widely used by consumers in general, let alone medical marijuana patients. One dispensary that briefly accepted Bitcoins said only a few customers used them.
– Even Bitcoin processors are wary of the currency’s place in the state-legal marijuana world, and some refuse to do business with cannabis companies over fears of running afoul of federal drug laws.
– The federal government isn’t exactly thrilled with the emergence of digital currencies, and officials have cracked down on their use for illegal purposes such as buying drugs. Given that marijuana in all its forms is still illegal federally, cannabis businesses that delve into digital currencies could face extra scrutiny.
– Digital currencies are highly vulnerable to hackers. One of the world’s largest Bitcoin exchanges revently filed for bankruptcy protection and halted trading of the virtual currency after an assault by hackers who exploited a technological glitch. Roughly half a billion dollars worth of Bitcoins vanished as a result.
– There are serious questions over the future of digital currency and whether it’s just a fad or a real alternative with staying power.
– Even some executives of digital currency services question whether they will work in the cannabis space, with one pointing out that some services would still rely on ATM operators with access to the traditional banking infrastructure.
Everyone is trying to get creative in an attempt to solve this very real problem for dispensaries and other marijuana businesses that have been black-listed by financial institutions.
So companies that are earnestly attempting to tailor digital currencies to the industry should be lauded for trying to come up with a viable solution. The industry needs forward-thinking entrepreneurs and visionaries to come up with new ways to tackle serious problems.
But while the long-term possibilities of Bitcoin and related currencies – and their application in the marijuana industry – are intriguing, they remain a very risky option for cannabis businesses at this time.
The industry is trying to stabilize and move away from its underground past. It already deals with enough scrutiny, volatility, uncertainty and legal issues as it is. Now might not be the best time to dabble in the risky world of digital currency.
Chris Walsh is editor of Marijuana Business Daily