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New data from FinCEN, within the U.S. Treasury Department shows that banks offering services to cannabis-related companies had a significant uptick from 438 banks and 113 credit unions in Q4 2018 to 493 banks and 140 credit unions in March 2019.
The data has been collected since 2014 by analyzing suspicious activity reports (SARs) and has shown that banks are increasingly taking the risk of federal penalties since cannabis is illegal at the federal level in the United States. One possible explanation for the significant uptick is new legislation that protects banks doing business with cannabis companies in state-legal markets just pass the House Financial Services Committee and is expected to have a full house vote soon.
Further, of the 81,725 SAR filled with FinCEN, 61,036 SARs, the vast majority contained the key phase “Marijuana Limited” meaning that there are no “red flags as defined in the Cole Memo and is compliant with the appropriate state’s regulations regarding marijuana businesses”. Most proposed federal regulations that protect cannabis companies and businesses that work with them require that the cannabis company still be compliant with the local state laws.
Cryptocurrencies’ narrowing adoption opportunity
Due to the pseudo-legal status of cannabis within the United States, cannabis companies are usually excluded from the traditional banking industry that must comply with federal legislation. Thus, these cannabis companies are often forced to deal in cash-only, which becomes very expensive to handle due to accounting and risk-aversion actions. This accounts for over $12 billion USDs in 2018 and is expected to grow to a market size of $16+ billion USD by the end of 2019.
This provides a unique adoption opportunity for cryptocurrencies since they offer these businesses an easy way to accept payments without the high cost of cash handling and transportation. Accounting becomes easier since the money is all digitized on the blockchain. Then there is also less incentive for a criminal to stage a robbery since they would need to find the password or recovery phrase rather than only breaking and entering to physically steal cash. This also saves businesses money on armed cash protection services. Additionally, consumers do not have to worry about having cash on them to make purchases.
However, as the data reveals, cryptocurrency has a closing window of time before more banks start offering traditional financial services to these businesses, at which point their incentive to adopt cryptocurrency payments lessens. Right now, cryptocurrency has a unique value offering that will save cannabis firms a lot of time and money, but these savings are not as drastic if traditional banking is an option.
Dash’s unique attributes for cannabis payments
A key element in using cryptocurrency for purchases is the need to be reliably fast and secure since neither the merchant nor the consumer want to wait for a long payment confirmation and they may never see each other again. This is even more true for cannabis purchases that tend to have a significant cost. Dash provides solutions to this with Automatic InstantSend locking in transactions in under two seconds for less than a penny and ChainLocks ensuring the risk of 51% attacks is minimized.
Dash has stood out so much in the payments sector that there are a couple companies that are already harnessing its power for cannabis businesses. Alt36 has already engaged in B2B transactions using Dash, with six-figure USD weekly volumes and plans to soon launch its B2C platform. Then other service providers such as VegaWallet and CoVault crypto ATMs recently launched a partnership to bring cryptocurrency services to cannabis dispensaries. These organizations recognize the advantages of using Dash as an extremely fast and cheap alternative to banking for businesses forced into a cash-only transactions, but they are also trying to work quickly to beat the clock on full legalization and traditional bank service offerings for cannabis companies.