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Financial Technology, Cannabis and Future Legislation

Now that the federal government is easing up on its stance against cannabis, entrepreneurs are capitalizing on the booming industry created around this plant. Some places, like Denver, Colorado have more medical marijuana retail outlets than coffee shops. In california, the industry is worth over $3 billion per year.

The Cash Business of Cannabis

Perhaps as a remnant of its previous status as an illegal street drug, cannabis transactions are largely done in cash. Medical marijuana shops are depositing bags full of cash into their bank accounts that weigh as much as their bags of dried plant parts. Even so, the government still wants its piece of this otherwise free exchange of goods and services. Consequently, the cannabis industry is heavily regulated, with every step in the supply chain carefully monitored. This process, known as “seed to sale” requires technological inventory management systems and POS software. Despite this, some shops are making due using simple spreadsheets, but compliance continues to become more difficult. Furthermore, some banks are not friendly to the wacky weed and legitimate business owners are having trouble finding a home for their bags of cash. This may subside when the federal government finally gets with the 21st century and removes cannabis from the controlled substances act. Until that happens, cannabis shops largely cannot take credit card payments. Visa does not allow it. The unusual aspect of this story is that this antiquated, over-regulated system makes electronic payments less likely, which means that it may be less likely for the federal government to get its hands on a portion of the revenues generated.

An Opportunity for Fintech Innovators

This is where innovators may find an opportunity for wealth. Companies like Visa will not process the payments, but a crypto-backed system, for example, may be willing to take on the temporary risk of processing such payments. Already, Metrc, BioTrack , and MJ Freeway are processing such payments. Furthermore, POS companies are taking a shot at integrating their platforms, too. These include Flowhub, Green Bits, and Treez (notice a trend?).

Eventually, the industry may become less regulated, and this space will begin to blossom. We may even expect gray-area technocrats like John McAfee to enter the space, too. Until then, keep watching the trends.