A population lives in the gripping fear of robberies, pistol whippings, and death. It sounds like the plotline of a rated R movie, but it’s the daily reality of many working at marijuana dispensaries. Federal banking laws make it challenging for dispensaries to open bank accounts, forcing them to function as cash-intensive businesses—a honeypot for criminals.
Banks Refuse to Onboard Marijuana Dispensaries
As marijuana use becomes legalized across the U.S., you would expect less restrictive banking laws to follow suit, but this hasn’t been the case. Banks are legally obligated to collect and share information on their clients to prevent illicit funds from entering the monetary system. For a marijuana dispensary, compliance requires constant oversight and review.
At a minimum, banks must check for:
- Appropriate operating and other business licenses
- Consistent business activity
- Public domains for negative news hits
- Business ownership structure and more.
Essentially, they must act as drug enforcement investigators to onboard dispensary clients. The level of surveillance required has one immediate consequence for financial institutions…the cost of compliance is extremely high.
This cost comes in the form of labor. To be more specific, hiring analysts for the sole purpose of monitoring transactions and banking activities. Errors in reporting lead to expensive fines and can jeopardize the bank’s ability to operate.
Because of these factors, while banking for marijuana dispensaries isn’t illegal, banks won’t accept them as clients.
Crypto Turns Dispensaries Into Their Own Bank
The world of blockchain and decentralized finance jumps the hurdle of banking regulations. With a suit of financial tools, a marijuana dispensary can now collect payments and operate its own bank in cyberspace.
Marijuana dispensaries are currently giant, sitting piggybanks. Those that can afford it spend upwards of $50,000 a month on armed security guards, but this is the exception. Storing capital in a digital medium like USDC or Bitcoin may deter robbers. How? Take the cash out of the venue, and there’s no longer a guaranteed payday.
An example of switching to decentralized banking may look something like this:
- Dispensary patients can only pay in Bitcoin. For convenience, the dispensary maintains a partnership with a Bitcoin ATM provider.
- When it’s time to check out, the cashier generates a lightning payment invoice. The lightning network allows for near-instant, extremely cheap transactions.
- The patient whips out their phone, scans the QR code on the invoice, pays, and is out the door.
- The Bitcoin can then be converted directly into a stablecoin to mitigate price volatility.
A Solution Not Void of Cons
It’s a simple solution, but it’s not without drawbacks. One potential bottleneck is withdrawing revenue back into the legacy system. You can’t use Bitcoin to purchase everything.
Not being able to convert back to dollars makes it challenging to pay dispensary expenses. Another drawback is the regulatory uncertainty of the crypto space.
In conclusion, the marijuana industry cannot remain unbanked. Constrictive laws currently in place are creating severe safety concerns. While hopping directly into a developing set of technologies may not be the best course of action, crypto is becoming more of a viable option the longer time passes.