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The Synergistic Effects of Crypto on Cannabis Businesses

The rapid changes in both cryptocurrency acceptance and marijuana acceptance have been mind-numbingly quick over the past two years. Both still have legal and regulatory hurdles preventing adoption and usage without pitfalls and landmines for the businesses or users. Interestingly, some of these trouble spots can be more easily overcome by transacting in cryptocurrency.

A Pitfall for Marijuana Businesses

The business of selling psychoactive cannabis products, whether for medical use or recreational, is against federal law. Banks are federally regulated, which is why they resist providing services in a way that would be a key component to a federal offense. This prevents many traditional financial arrangements between suppliers and customers of these businesses. Imagine being a thriving business not able to go to the bank for a loan to finance inventory or expand. Perhaps more serious is the safety of employees as all-cash businesses are targets for crime – at times a deadly crime.

A Pitfall of Cryptocurrencies

Price volatility, tied to a lack of inherent value, is a problem for digital currencies not tied to the value of anything specific. It’s an important concern, but one that can be overcome by linking currency to a more standard measure. Gold, silver, and oil have been used in the past to back paper currency. Standard units with more stable values can help support and stabilize cryptos.

Synergies and Interactions

The problem of safety and non-cash transactions for marijuana, and the beneficial impact of coupling a measurable and largely standardized product to a digital coin has lead to the development of marijuana-specific virtual currencies. Cryptocurrencies can provide an easier path than $USD for people in the marijuana industry. A digital currency can also make it easier for consumer transactions. As far as a budtender leaving the dispensary to make a cash deposit, this can be done electronically with a cryptocurrency, eliminating that safety concern.

There are a few coins specific to the cannabis business, each with different traits. Outlined below are four with readily available information available related to their usage.

CannabisCoin (CANN.x) has been active since 2014. The architecture is a proof-of-work, peer-to-peer open-source currency aimed at easing transactions for medical marijuana dispensaries.

Functionally, CANN.x pledges to convert cryptocurrency directly into marijuana. Under the name CANNdy, there is a line of medicines and marijuana strains grown for the specific purpose of exchange at the rate of 1 CannabisCoin to 1 gram of medication.

The total supply of CannabisCoin is set at 91.8 million, with over 77 million in circulation. The currency’s value in circulation was $1.30m as of September 24, 2021, according to Coinbase.

DopeCoin (DOPE.x) founded by a man whose nickname is Dopey, has been active since 2014. This currency is more private, so far less is known about the specific markets the currency serves except that its “mission is to provide marijuana enthusiasts with a modern and secure way of doing business for the 21st century.”

According to its website, DOPE.x users can transact pseudo-anonymously in under a minute and don’t pay any fees or transaction costs.

DopeCoin supply is limited, with about 117 million units in circulation. It is also a proof-of-stake currency, giving investors a chance to earn 5% in annual interest. The currency has a value in circulation of $299.5k as of September 24, according to Coinbase.

HempCoin (THC.x) also came into existence in 2014, although its focus is less on individuals using it to buy product. Instead, this cryptocurrency is intended for use by the farming industry and medical and recreational dispensaries. The THC.x website says its goal is to “help facilitate secure transactional relationships between farmers, distributors, and consumers.”

HempCoin has been used in all areas of agriculture, not just those involving marijuana. As of September 24, the price for one HempCoin was $0.0102, and its value in circulation was $2.7m.

PotCoin (POT.x) launched in January 2014 and was one of the earliest cryptocurrencies for the marijuana industry.It was designed to solve banking problems for people looking to transact in legal marijuana. Trading of PotCoin is direct between people; there is no exchange or clearinghouse. The creators wanted to capitalize on Colorado’s legalization of marijuana and went as far as installing a PotCoin automated teller machine (ATM) at a dispensary in Colorado.

The currency got off to a very sluggish start but became known and more popular when in June 12, 2017. A press release and a video of former NBA star Dennis Rodman wearing a PotCoin.com T-shirt in North Korea provided PotCoin popularity and recognition. They funded Rodman’s trip, which may have paid off as the MJ-based crypto value approximately doubled in just one day.

As of September 24, its value in circulation was about $3.8 million—a big jump from $81,547 at the start of February 2014. One PotCoin was worth $0.0167 on September 24. The coin is up about 70% year-to-date.

The supply of PotCoin is limited to 420 million coins. More than 226 million are in circulation. It trades on three markets and is proof-of-stake, which allows people to mine or validate block transactions according to the number of coins they hold. An important differentiator, PotCoin claims transaction speeds of 40 seconds.

Take-Away

The challenges for blockchain-derived cryptocurrencies and those inherent in marijuana transactions have brought the two industries together to find solutions. Some of these have been in practice for seven years with mixed results.

Until a softening of federal regulations around marijuana occur, crypto is one solution to one of the pitfalls of the business. For digital currencies that derive value from the units of cannabis they can purchase, there is a set range of volatility when tied to a product that is becoming more and more standardized. This is why for the past seven years, MJ-based businesses and consumers can use marijuana-specific cryptocurrencies to transact and get around some banking issues.

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