Banking in the cannabis industry is developing very slowly. A few banks and credit unions are doing business in each of the states where marijuana business is legal, but we are not seeing an explosion of services. A number of our clients have asked whether using Bitcoin makes sense. Using Bitcoin to replace having a traditional bank account does not make a lot of sense in the short term, and our always being asked about it shows a lack of information on Bitcoin’s capabilities, so here is a bit of a primer.
Bitcoin’s early adoptees have labeled it as the world’s first completely decentralized currency. Unlike the Dollar, the Euro, the Yuan, etc., no central government manages or backs Bitcoin. In addition to being called a decentralized currency, it is also called a “cryptocurrency” — a digital currency that uses encrypted services to generate units of the currency and to transfer funds. The development of Bitcoin has been fascinating, and you can read primers on it here and here. Basically, the value of Bitcoin is that using a Bitcoin wallet enables customers and businesses to engage in transactions without using paper currency and without going through an intermediary institution like a bank.
Though Bitcoin is intriguing, it does not make much sense for marijuana businesses. Its primary difficulties stem from its low adoption rate. For a cannabis business to do a significant volume of business with bitcoins, it would need buy-in from its customers, vendors, shareholders, employees, taxing authorities, and others. We just do not see that happening.
If a business owner is going to accept bitcoins as legal tender it will in turn need to pay its employees and vendors and others using bitcoins or else need to exchange its bitcoins for cash. Exchanging bitcoins for cash will necessarily involve either selling the bitcoins for cash that goes into a bank account (the original problem we are trying to solve) or engaging in activities that look a lot like money laundering and misusing corporate assets.
This brings up one of the other negatives for Bitcoin in the cannabis industry especially: law enforcement associates Bitcoin with the illegal narcotics trade. Bitcoins were famously used by the first two iterations of the Silk Road, an online highly illegal drug bazaar. Marijuana businesses that want to avoid federal shutdown need to sprint in the opposite direction of anything associated with online narcotics exchanges.
Bottom Line: There is nothing stopping most marijuana businesses from dabbling in bitcoins and accepting bitcoins in addition to dollars, but it is not a panacea, nor is it a viable alternative to having a functioning bank account.
For more on cannabis banking, check out the following: