Colorado marijuana dispensaries have been facing a problem for the last two weeks. What do they do with the millions of dollars they are taking in from now legal sales? As of Jan. 1, marijuana became legal to sell in the Centennial State, and since that date dispensaries have been the financial successes that pot proponents said they would be. But as the New York Times reported earlier this week, banks have been reluctant to accept the funds from weed sales, despite their legality, because of federal laws that classify marijuana as a Schedule I drug clashing with state laws that have made it legal for adults 21 and older. As banks are queasy about getting into the murky waters of legal drug money, bitcoin may offer a solution to the dispensary’s jam.
As in a scene from a big budget heist movie, dispensary owners are becoming nerve-addled paranoids as they drive with briefcases and sacks full of cash to pay their taxes. These legitimate businessmen are being forced to fear thieves, carjackers, and petty criminals looking for a huge payout. But by converting their cash into bitcoin, or accepting the digital currency outright, dispensaries are given the opportunity to secure their earnings in a way that isn’t currently offered to them. It has been reported that at least one dispensary so far is already accepting bitcoins as a form of payment.
Bitcoin has taken off in the last year, and many bitcoin investors are working diligently to move the cryptocurrency away from its illicit and shadowy past. Last October, the FBI seized and shut down the Silk Road, a digital black market that used bitcoins as the unofficial currency. This was hailed by advocates who were trying to legitimize bitcoin as a real currency. With the shutdown in full effect, bitcoin started to rise in value. Whether that rise is directly linked to the move away from illegal activities or if it is purely coincidental is all speculation. Whatever the cause, bitcoins skyrocketed and since late December the value has somewhat stabilized, which offers a great opportunity for any business.
However, right now there isn’t a way to transfer significant amounts of money into bitcoins without a bank account. But new bitcoin ATMs may be able to provide a solution to that problem. A relatively new development to the bitcoin scene, bitcoin ATMs are finding their way to the common people. Vancouver, Canada, got the first bitcoin ATM late last year and New York City is set to debut the first one in the United States. But if Colorado dispensary owners adopted the technology, it could provide them a level of security they need and now lack.
Companies like Robocoin, Lamassu, BitAccess and Genesis Coin are in the bitcoin ATM market. Bitcoin ATMs allow for the easy transfer of funds between bucks and btcs. However, according to Evan Rose, CEO of Genesis Coin, dispensaries haven’t jumped onto the idea just yet. “While we haven't had any interest from dispensary operators at this time, it is certainly possible that the Genesis1 could be a useful application,” said Rose. “I'm not sure a Bitcoin ATM would be a complete panacea for their industry, however, as our product still relies on ATM operators with access to traditional banking infrastructure.” While Rose sees the opportunity, he indicated that Genesis Coin is not currently pursuing that market.
One problem that might arise is that, to some, this could be considered money laundering. Bitcoin ATMs need to remain compliant with anti-money laundering laws to operate, which currently involves record-keeping and proof of identity among other requirements. AML compliance is what is holding up the debut of New York City’s first bitcoin ATM. The bitcoin ATM in question is made by Lamassu, and does not offer any identity verification beyond scanning a QR code linking to the user's bitcoin wallet. But Robocoin, the makers of the bitcoin ATM in Vancouver, provides a three-part security system completely AML-compliant, including biometric palm vein detection, facial recognition, and scanning national known terrorist databases. No Robocoin ATMs are installed in the United States as yet.
Additionally, dispensary owners might be wary of the cryptocurrency because bitcoins are not currently recognized as a currency by the United States government. Therefore, any kind of fiat-to-bitcoin transfer would have to be highly documented. But as long as dispensaries are keeping solid records and paying taxes, the cash-to-bitcoin swap could provide a much needed haven for dispensary earnings.
Ultimately, marijuana and bitcoin mirror each other as they move from illicit to acceptable. Marijuana dispensaries are caught in a tight spot between legal and illegal as users yearn for them, supplying them with piles of cash they cannot deposit. Bitcoin exchanging may become the best way for them to avoid the cash-in-hand problem, but it isn’t there just yet. Bitcoin still needs to gain a wider acceptance as a currency and government approval, while users may have to give up some of the anonymity that they hold so dear. As it stands, we will just have to sit back and see what happens.