Banking and Business

It seems that I am always getting pitched on “creative solutions” to the cannabis industry’s banking problem. Because cannabis is still federally illegal, most banks will not provide financial services to cannabis businesses, even though FinCEN issued guidelines to allow financial institutions to provide bank accounts to the state-legal cannabis businesses. Many tout Bitcoin as the solution.

Bitcoin is viewed as the world’s first completely decentralized currency. Unlike the dollar, the euro, the yuan, etc., no central government manages or backs Bitcoin. It is also called a “cryptocurrency”—a digital currency that uses encrypted services to generate units of the currency and to transfer funds. 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. Its chief appeal to the cannabis industry is that it allows for currency transfers with little to no need for a bank. There are significant issues involved with using Bitcoin in the cannabis industry, and law enforcement associates Bitcoin with the illegal narcotics trade (see the Silk Road).

“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.”

At the beginning of January, Washington State Senator Ann Rivers (who was instrumental in securing passage of SB-5052, which essentially wound down Washington’s existing medical cannabis cooperative system) proposed a bill to ban Bitcoin in Washington State’s cannabis marketplace. Senator Rivers said that her proposed bill to ban Bitcoin was brought to her by “an organization” looking to preserve “the transparency that we have in our legalized marijuana system in our state.” The eight-page SB-5264 adds to the definitions section of RCW 69.50.101 (Washington’s Controlled Substances Act) the term “virtual currency,” and then proceeds to ban it for cannabis sales. Under the bill, “virtual currency” would be defined as follows:

“ . . . a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government. ‘Virtual currency’ does not include the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.”

The bill then states that “[a] marijuana producer, marijuana processor, or retail outlet must not pay with or accept virtual currency for the purchase or sale of marijuana or any marijuana product.”

The Bitcoin ban bill was debated at length in Olympia and Senator Rivers’ cited to the Cole Memo prohibiting the “shrouding” of anyone who participates in Washington’s cannabis industry as its justification. Senator Rivers contends that Bitcoin can’t meet the 2014 FinCEN transparency guidelines. Tom Parker and Kenneth Berke of PayQwick also testified that Bitcoin does not satisfy FinCEN transparency guidelines, and allowing it for Washington State cannabis businesses will invite federal enforcement and thereby harm the cannabis industry as a whole. On the other side of the argument, Ryan Hamlin and Jon Baugher of POSaBIT testified that Bitcoin is perfectly traceable, auditable, verifiable and transparent, and that the state needs to better understand Bitcoin transactions before it bans its use in the cannabis industry. James Paribello, legislative liaison for the Washington State Liquor and Cannabis Board, testified that the Board essentially has no opinion on the use of Bitcoin or its proposed ban, so long as the Department of Financial Institutions allows it, which it currently does.

Given the uncertainty of the state-legal cannabis industry under Trump and Sessions and the precarious staying power of the Cole Memo and the FinCEN guidelines, Bitcoin may just be too risky for Washington State’s cannabis industry. But if the state can get educated about and comfortable with Bitcoin, virtual currency may be here to stay in the Evergreen State’s cannabis industry.