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Marijuana in Colorado Faces Same Legal Obstacles as Bitcoin

Tuesday 21st, January 2014 / 05:41
Marijuana in Colorado Faces Same Legal Obstacles as Bitcoin

Bitcoin and marijuana, at least in terms of US legal issues, have more in common than you might think.

Consider the situation that has developed in the state of Colorado: on 1st January it became the first US state to allow the sale of recreational marijuana.

Customers who can identify themselves as aged 21 or older can now walk into a dispensary and buy the drug in regulated quantities.

Not all advocates: While the Colorado vote on the legalization of marijuana was a win, it was pretty divisive. Source: Wikipedia
The Colorado vote on legalization was pretty divisive. Source: Wikipedia

 

An increasingly informed and engaged populace is influencing trends like this one. The web, alongside mobile devices and social media, has allowed people to campaign for causes like never before.

The network effects of bitcoin will likely see this same influence as adoption increases. The banking industry’s hands-off approach to legalized marijuana in Colorado often mirrors the industry’s reaction to bitcoin.

Bank involvement

While it has been reported that at least one Colorado marijuana dispensary is accepting bitcoin, none are advertising that fact publicly. Right now, the major choices are twofold in stores that sell pot: the acceptance of cash or plastic. However, as it stands, credit cards are operating in a grey legal area.

Clearly, dispensary operators have found that cash is king in this new industry. Funnily enough, that makes the payment option for buying legal weed not much different than that of illegal methods.

The New York Times recently recounted how legal marijuana sellers in Colorado must contend with handling massive quantities of cash, drug dealer-style. Why? Simply put, banks in Colorado don’t want to deal with money culled from a weed-based business, legal or not. Banks are afraid of regulators, and in the federal government’s eyes, pot is still illegal.

Credit cards and marijuana

Cash is the most common option for buying legal weed, although some dispensaries are reportedly accepting credit/debit cards. But what do dispensaries do if a credit card company refuses to do business with them?

According to the Wall Street Journal, Visa is treating credit card-based pot sales with a touch-and-go approach that puts the onus upon merchant banks. MasterCard says that it considers using its cards to buy marijuana as illegal.

And American Express is being proactive, monitoring weed shops trying to accept the company’s cards and blocking them.

Visa is the most popular credit/debit card used for US purchases. Source: Nilson Report
Visa is the most popular credit/debit card for US purchases. Source: Nilson Report

 

This lack of clarity from processors is likely to make marijuana dispensaries in Colorado leery.

The threat of a chargeback or other procedural misgivings from these credit card companies must weigh as a factor towards just taking cash. That’s straight money in the bank. But unfortunately, banks are another integral part of the problem. Visa, for example, seems to be letting merchant banks make the decisions on processing plastic-based marijuana payments.

Just like the rare bitcoin exchange that successfully operates in the US with a banking partner, these types of relationships are scarce. Like exchanges, dispensaries generally decline to reveal who their banking partners are to protect their relationship.

Banking control

For credit card companies, legalized marijuana is all about holding down the appearance of control at this point. It all originates with compliance in banking; after all, there’s surely a degree of money laundering and other illicit use by some payment processors with credit cards being a facilitator.

Banks are simply mitigating risk by not publicly doing business with marijuana dispensaries because that type of business is illegal at federal level.

That may soon change. Jack Finlaw, chief legal counsel to Colorado Governor John Hickenlooper, says that the federal government “will give maybe not a green light but a yellow light” for banks to work with marijuana-based businesses soon.

That could be favorably compared with FinCEN’s guidance regarding bitcoin last year. In that case, it was a sign that government regulators would not try to simply shut out bitcoin-based businesses, but try to work with them within a framework of compliance instead.

Current state-by-state laws regarding marijuana. Source: Washington Post
Current state-by-state laws regarding marijuana. Source: Washington Post

 

With marijuana, as with bitcoin, the government may see that popular opinion is swaying towards innovation and legalization. Consider that an effort to decriminalize marijuana in Washington DC is underway – with the city’s public safety panel possibly dropping infractions down to a parking ticket.

The capital has already passed a law legalizing medical marijuana. In turn, non-profit decriminalisation efforts like the DC Cannabis Campaign already accept bitcoin. Virtual currency and pot will likely continue to intermingle with one another in this way to help shape decriminalization.

The issue of anonymity

Many people are suspicious of credit card companies’ collecting personally identifiable information. After all, if companies like MasterCard and American Express are saying that they will block pot-based transactions, that means those organizations are paying very close attention to purchases happening in Colorado in order to enforce these policies.

The problem with any sort of privacy with buying marijuana is that it actually isn’t really possible anyways. Amendment 64, the Colorado statewide drug addendum to its constitution, strictly forbids the collection of personally identifiable information when someone buys legal marijuana. But state rules require that dispensaries use video surveillance that is aimed at a store’s point of sale to clearly show the buyer and the seller.

Bitcoin can be anonymous, but with legalized pot that doesn’t matter. Because of this, it is a novel idea that bitcoin might be used for legal pot transaction. Yet, while the drug is legal in Colorado, it is still considered illegal by the US government. And while bitcoin is, by all accounts, considered legal by the US government, regulatory laws in Colorado (or any other state) have not been made quite so clear.

This has created a precarious footing for any combination of both bitcoin and pot.

Although it seems like a sensible pairing, the continued loose compliance in these different arenas makes it more logical for dispensaries to roll the dice with cash and possibly credit cards. Hopefully that will change at some point, as the use of bitcoin as a payment method for a legal product on the US market could actually help to give it some credence.

Marijuana Image via Shutterstock

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