Bitcoin And Cryptocurrency Look To Solve Cannabis Industry’s Budding Banking Struggles
Cryptocurrency and Cannabis are a match made in heaven. To start off with, both these markets are an upcoming phenomenon with no clear regulatory oversight and a lot of money flowing into them.
Problems Of The Cannabis Industry
The most urgent issues that stand in the cannabis industry’s way is that cannabis-based businesses are compelled to go without banking. Banks are outlawed from servicing businesses that are still illegal under federal law. On top of that, cannabis-based businesses are lawfully hindered from keeping more than $100,000 on the premises at any given time. Holding more than this amount leaves businesses exposed to theft in addition to legal trouble. Failure to diligently report finances to the authorities could also result in asset relinquishment.
This results in plenty of problems, for customers, businesses and regulators. Businesses are obliged to deal in cash only; they must find alternate ways of storing their revenue. Lack of banking access means they can’t get loans for expanding their businesses either. The costs linked with starting a dispensary or other cannabis-related business are significantly greater than those associated with starting other kinds of small businesses.
In fact, estimates suggest that the cost of initiating a legal cannabis dispensary in the US can go anywhere between $250,000 and $750,000; which includes licensing fees, inventory, insurance, investing in security systems, acquiring retail space, and having adequate cash to demonstrate business viability.
Can Crypto Help?
There is good news for cannabis entrepreneurs. People who cannot secure funding from private investors must seek their funding elsewhere. Crowdfunding is an option. Cannabis sector entrepreneurs are entitled to involve in crowdfunding initiatives under the JOBS Act. Title IV permits small businesses to obtain up to $50 million in funding from public investors.
This is where cryptos and more specifically ICOs come in.
ICOs have been frequently used as ways to finance companies that deal in industries that traditional financial institutions and services won’t typically associate with. Blockchain can open up the backflow of capital that desires to back the cannabis industry in the states that have legalized cannabis. It also speeds up the payment process, in that large amounts of capital can be sent instantly, rather than waiting multiple business days for payments to clear.
Some Cannabis companies have gained profit in their ICOs, and have gone on to become relatively well-established firms. Paragon Coin and PotCoin are two examples of companies that have managed to stay afloat.
Although there are an increasing number of cannabis-related platforms that have used ICOs as a method of fundraising, crypto can also be used for raising funds outside of an ICO setting. Let’s take an example of High Times Corp, publisher of High Times Magazine. They announced a couple of months back it would be accepting Bitcoin and Ethereum in its upcoming IPO. The choice to receive BTC and ETH into the company’s IPO was praised as the first of its kind.
As both these industries are still new, the way regulations around them are formed could have a large impact on their futures. Whatever the future holds, as things stand now, they both have a lot to gain from each other. It is at the business’s discretion to utilize the capture these niches for their benefits.