How does a fledgling industry — worth $7.4 billion USD last year and potentially over $14 billion — reconcile with the fact it’s… still technically illegal? Even if allowed to operate, direct and related businesses face an obstacle course. Who would even get involved? The Crypto Cannabis Conference 2017 in Denver offered an interesting slice of industry life.
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When You’re Legal but Still Illegal
Several of the speakers at Crypto Cannabis spoke of the legal paradox they find themselves in. Technically this is an illegal industry, said one — federal law trumps state, and federal law says cannabis is still Schedule 1 illegal.
In fact, search the names of some business owners and you’ll see mug shots, from previous arrests for participating in commerce that’s now legal in Colorado. A strong sense of that legal edginess remains — even a small slip in compliance procedures will still put business operators in trouble.
Bitsonline interviewed some of the attendees and presenters, watch it here:
It’s not only the suppliers and sellers who now have problems gaining standard business services. Service providers themselves, including lawyers, report having their own bank accounts shut down as a result of “touching” the cannabis industry. Some individuals are even busy isolating their personal financial affairs, such is the concern.
‘You Are Creating an Industry Here’
Michael Bright, CFO of THC Magazine, got the talks rolling with a personal talk designed to inspire participants.
“You are the industrialists,” he said, “you are creating an industry.”
He said the federal government, with its often contradictory regulatory approach, is getting American’s hooked on opioids while denying them medicines that could actually help.
People need better information on what cannabis is and what it actually does. His mother, he noted, still harbored misconceptions based on the “Reefer Madness” view of marijuana. She was curious to try it, but was afraid of going crazy.
‘Forrest Gump at the End of Prohibition’
Mark Goldfogel of Fourth Corner Credit Union spoke of his challenges with the traditional financial system. He’s more involved in that than most, since his company has been suing the Federal Reserve itself for the past couple of years.
Goldfogel has been involved in a few finance-related projects. Over his years in cannabis, four banks had cut ties with is business and his own personal account was shuttered, he added. Fourth Corner was designed specifically for the industry and received the first state charter. On a federal level, though, things have been far tougher.
“Basically we got our asses kicked”, he said. However an appeal is still ongoing.
“We are like Forrest Gump there at the end of Prohibition,” he said, taking an optimistic view. Cryptocurrency has always had its strength in drug sales, legal or otherwise. Call it black or gray market, but if you want to sell drugs then crypto is the currency to use.
Bitcoin Sales and ICOs Have a Part to Play
There are two ways the cannabis and cryptocurrency industries will intertwine. There’s the obvious one — that cash-only marijuana dispensaries need a better means of transacting and storing value.
The other is raising capital. Startups covering various facets of the industry will need funding to get off the ground, but how and from where are they supposed to get it? There have been a few altcoins and ICOs in the cannabis industry, but are they a viable solution?
A brief moment of tension arose when Bitsonline‘s own Art Rozenbaum, speaking on a Bitcoin panel, called ICOs a risky proposition for the SEC. Lawyer Dave Rodman strongly disagreed, calling it “fear-mongering” and saying regulators would have a hard time stopping any token that did not pass the Howey Test (the Howey Test is a positive test, therefore “passing” it would mean the token is a security).
The SEC was not a bad actor to be feared in the way that the panel was portraying it, Rodman said. In response to a question about the consequences investors in an ICO would face from the SEC if it considered a token a security, he responded that the SEC protects investors (or tries to) and that it was companies operating ICOs that would need to be wary.
However, as the TEZOs project in Europe is now finding out, regulators may decide to intervene if governance looks problematic.
Rodman’s firm, Rodman Law Group, specializes in the cannabis industry. He referred to the famous “Cole Memo” which laid the informal framework for the federal government to deal with state-legal enterprises.
He quoted an attorney from a different firm as saying “cryptocurrency is not in the spirit of the Cole Memo,” while clarifying that he takes the opposite view himself. Some in the government fear Bitcoin and cryptocurrency is moving away from compliance and transparency.
Crypto Cannabis: Many Different Stories With a Similar Theme
Representing the industrial hemp industry at Crypto Cannabis was Veronica Carpio of 1620Solutions. 1620 has set up a payment processing facility called “Swish” which works with both credit cards and bitcoin.
At this stage, cannabis is increasingly legal at a state level, but remains illegal on the federal level where banks and finance live. That situation doesn’t look like it’s changing anytime soon.
Navigating this minefield is where most of the challenges lie, no matter how innovative the plans.
Do you think Bitcoin, cryptocurrency and ICOs can help industries like this? Let’s hear your thoughts.
Images & video via Jon Southurst