The marijuana industry was one of the last bastions of networks where cash found solace. Ironically, cannabis moves forward as the first enterprise to employ digital tokenization. However, this is not a fairy tale story, but one forged out of necessity.
This year, Nevada legislature passed, Assembly Bill 466, an agreement to create a pilot program offering closed-loop payment processing systems that would provide a banking solution to the state’s marijuana-related businesses. The three year experimental trial that starts in 2020, will allow consumers to use tokens to purchase cannabis products through an app instead of cash.
Currently, federal law prohibits banks from servicing dispensaries and satellite departments because marijuana is categorized as a Schedule 1 substance, or an illegal drug. According to John Hudak, a senior fellow in governance studies at the Brookings Institution “With those laws come the regulations that banks and other financial must abide by. They forbid working with drug cartels, drug dealers, and really any business that works with drugs.”
As a result of the restrictions, the legal cannabis business operates largely in cash, until now, as Nevada attempts to circumnavigate stringent federal laws in its state-wide plan. With the pending financial-tech system in Nevada, it will provide the state real-time record-keeping of transactions as consumers turn dollars, credit card transaction and debited currency into digital tokens to use at cannabis stores. Ultimately, it sets up an electronic business-to-business payment platform for Nevada’s booming cannabis industry.
Additionally, the closed loop system aims to make it harder for legal retail marijuana dispensaries to avoid paying local and state taxes. With companies like Canopy Growth reporting net income of about $56.8 million and Leaflink being the largest marketplace for wholesale cannabis transaction with 16 percent of all $1 billion orders made in the US, tapping into that revenue stream whether weed is federally legal or not, are beginning to peak on the state level.
Cashing in on a cash crop
In the heart of Las Vegas, near its downtown, a modest patch of acreage belongs to the Pauite Tribe. One of the indigenous nations that have lived on the desert lands for generations, the Pauite survived hundreds of years of colonial imposition, genocide and land grabbing by white settlers. There, they also own NUWU Cannabis Marketplace, the largest marijuana dispensary in the world, opened seven days a week, 24 hours a day.
Spanning 16,000 square feet, NUWU has an open-floor layout with vitrines showcasing dozens of cannabis leaf options, tasting rooms and a modest selection of merchandise and smoking accessories. Offering concierge operations from a diverse staff from Native to Black folk, you can only purchase marijuana in cash. Very explicitly, the ATM machine is one of the first things you see along with NUWU’s waterfall.
NUWU Cannabis Marketplace in Las Vegas offers high quality cannabis and cannabis accessories.
Selling a wide selection of some of the highest quality of cannabis in the area, NUWU’s line of leaves is not cheap. Regardless, its 10 AM on a Monday and a steady flow of nondescript people walk in with wads of cash. From grandpas to housewives, ensconced between millennials and Generation Xers, stockpile for the day.
One of the retailers, a young Native woman explained that the money will go to “expanding the store” then the proceeds will “go to the tribe.” She also noted that business was good after suggesting some of her favorite cannabis strains. Once an order is placed, your selection is placed on a tray and placed on hold behind the seller’s counters. After you pay, it is tightly wrapped in a smell-proof silver bag.
Clean and efficient, the Pauite have cultivated a system of service that sets the stage for a new gold rush for migrating transplants and tourists sampling THC oils and edibles, and who will soon, use tokenized ATMs.
Now that governments are starting to see that cannabis and related revenue is slipping through their hands, gradually, states are taking action. In California, State Senate Bill 51, also known as the Cannabis Limited Charter Banking and Credit Union Law, calls out the lack of banking services for marijuana business a regulatory and safety issue. Challenging state and local governments with auditing cannabis related businesses, if passed, the bill will “authorize a cannabis limited charter bank or credit union to enter into an agreement with another licensee to form a banking network, subject to the approval of the commissioner, to facilitate the provision of cannabis banking services.”
The bill was introduced to offer as a more efficient method to tax the $3.1 billion dollar, cannabis industry in California. Mercury News reported that during the first year of legal operations, the state collected $345 million in tax revenue. By remaining a cash-based industry collecting taxes “is made significantly more difficult when the majority of transactions are completed with cash” the bill states.
With the ever increasing acceptance of legalized marijuana and increasing verbiage of alternative payment systems like tokenization, the fairy tale marriage seems to be set in the west. While digital tokenization will likely get its initial boost in California, Colorado, and Nevada—all heavy cannabis-friendly with recreational marijuana laws in place, the practice of turning encrypted data or cash into digital tokens will not end there. It is just the beginning of a new currency system.
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