Today, 47 states have legalized cannabis in some form or another. The problem is that federal laws still categorize marijuana as a schedule 1 drug or an illegal substance. In turn, cannabis businesses cannot bank at FDIC insured banks.
Due to legal restraints, cannabis companies have encountered obstacles in their growth. The answer, thus far, is cryptocurrency. With the emergence of cannabis markets having few options to bank, cryptocurrency found a financial bedfellow.
“Everybody wants to discuss the solution to the financial constraints of the cannabis industry,” said Bryan Meltzer, a partner at Feuerstien Kulick a law firm that represents people and companies in the cannabis business.
“Cryptocurrencies and the marijuana industry have a natural intersection.”
Ten years ago, speaking about legalizing cannabis for recreational use or employing a system of decentralized, virtual currency was considered bizarre, and even a taboo to openly talk about. Eventually, the pairing of these two social and economic pariahs, created a symbiotic relationship for new flows of currency.
“[Cannabis and CBD] is an evolving sector at a time when technology and the global forces of the global marketplace and global capital markets are changing the way every company in the world is doing business,” says cannabis investment expert, Tim Seymour on the ETF Podcast with Neena Mishra.
This year, PotCoin (POT), one of the largest cryptocurrencies to buy and sell cannabis in the $100 billion legal marijuana business, performed with a market cap of $1.3 million. Also serving the void of liquidity in the industry is CannabisCoin (CANN), a “peer-to-peer cryptocurrency for the cannabis community,” with a market cap of $1.58 million.
In 2014, Canopy Growth (NYSE: CGC) became the first marijuana company to be traded on the New York Stock Exchange. In 2018, Canopy Growth became public and has a 65 percent profit. Since the resurgence of cannabis containing effective medical properties, spurred by the green movement, there are now six marijuana based exchange-traded funds (ETF) with the ticker symbol (MJ) being the first ETF: Cambria Cannabis ETF (TOKE) and (CBOE); The Cannabis ETF (THCX); Global X Cannabis ETF (POTX); Canopy Growth (NYSE), Aurora Cannabis (NYSE); and ETFMG Alternative Harvest ETF (NYSEARCA:MJ).
According to Nasdaq, at one time, MJ valued at $1.1 billion. Though it has decreased significantly, the green rush, supported by blockchain platforms, have pushed countries away from prohibition era legislation.
The original greenback
For many years, cannabis has been associated with being a medium of exchange or sharing. Now as a commodity in the open market, the idea of cannabis was repackaged to be thought of as currency or capital.
As marijuana cosigns a modern take on currency, there is a parallel to the past according to a PBS timeline of hemp and cannabis production in the country. In 1619, the Virginia Assembly passed legislation requiring every farmer to grow hemp. Then, hemp was allowed to be exchanged for legal tender in Pennsylvania, Virginia, and Maryland. By 1914, hemp was so commonplace for currency that the $10 U.S reserve note depicts hemp stalks on the back of the bill. It seems that greenbacks have always been green-backed.
On September 25, congress passed H.R. 1595 a bill that eases restrictive regulations for banks. Rep. Joe Courtney, an original co-sponsors of the bill called H.R. 1595, “historic legislation.” In his press release he stated
“The bill establishes a safe harbor for any depository institution that chooses to provide banking services to a legitimate cannabis-related business that holds and maintains a license from a state or local government to engage in manufacturing, growing, or producing cannabis, as well as any business that handles, sells, transports, displays or distributes cannabis or cannabis products.”
While the bill is a step towards marijuana advocacy’s goal to decriminalize cannabis, it is still illegal on the federal books, thus banks still are not jumping to do business with hemp and cannabis farmers and growers. For cryptocurrency, the challenge emerges at the perfect time.
Crypto’s rise on the backs of green
When talk of a democratized virtual currency gained traction after the 2008 financial collapse, it was a whisper often relegated to dark shadow activity. Certainly, a currency using cryptography as a medium of exchange would not replace dollar bills, checks or plastic credit cards.
In today’s fintech era, citizens employ a phone app connected to their bank accounts, or a blockchain wallet to spend cryptocurrency. For the bankless state of marijuana, cryptocurrencies like Bitcoin gave marijuana businesses, a mechanism of transparency on every sale in order to legitimize a shadow industry.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but everything of value,” writes Don and Alex Tapscott in there book, Blockchain Revolution.
As cannabis profits floated between cash and crypto, it developed so much legitimacy that even nations began to base to position their economies to transition from a fiat-to-crypto society. Although, cryptocurrency experiences high volatility like all new markets, countries like Japan, South Africa, Argentina and Brazil make up some of the nations with a high adoption of cryptocurrency.
Currently, cryptocurrency makes progress to being adopted by larger financial groups with Deutsche Bank joining the 320 Interbank Information Network that backs J.PMorgan’s cryptocurrency called JPMCOIN. Added, Bitcoin is traded under the BTCUSD stock. On the NYSE since 2015, Bitcoin allows fiat currency to get involved in the new technological revamping of financial systems of the world.
When cryptocurrency was ostracized, it needed early adopters to give it credibility. The cannabis industry seems to be the first at bat. Leslie Bocskor, president of cannabis advisory firm Electrum Partners said “We’re seeing there are fewer risks with blockchain transactions than with your normal credit cards.” Now, the real problem with both marijuana and cryptocurrency is regulation. The government can step in at any moment and destabilize the industries. With cannabis approaching to be a 22 billion dollar sector according to Brightfield group, a cannabis consumer analyst firm, the feds attempting to do so will be difficult.
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