At first glance, the 21st century businesses of cryptocurrency and legalized marijuana seem incompatible. A closer look, however, reveals a potentially more harmonious picture.
It’s not just because pot companies, which currently have problems accessing even the most basic services provided by the traditional financial sector, could benefit from using assets such as Bitcoin (BTC -4.37%) and Ethereum (ETH -7.16%). It’s also because blockchain technology holds the promise of streamlining operations and accounting in an industry where such efforts can be complex.
Motley Fool contributor Eric Volkman recently had the opportunity to discuss the potential marriage of crypto and weed with Mark Lozzi, Founder and CEO of the industry’s next-gen financial services company. cannabis, Conifa. Here’s what he had to say.
Eric Volkman: What are some of the best use cases for crypto tokens and coins in the marijuana industry?
Mark Lozzi: The cannabis industry would be better served with a stablecoin. The industry already faces sufficient market volatility, so introducing additional risk is unnecessary and should be cautioned against.
I would simplify the use cases into two practical tracks; consumer payments and business-to-business transactions. Consumer payments are an easy way to introduce crypto to the industry. The benefit is to increase the purchasing power of consumers by unlocking new forms of accepted payments, but also to ensure that the industry stays abreast of societal interests and innovation.
I believe Managed Crypto Payments will move to broader acceptance and application in which crypto via stablecoins will be held by cannabis companies as account balances and used for everyday purchases.
Volkman: Along the same lines, how can blockchain technology be leveraged to help growers/processors/retailers of marijuana?
Lozzi: The idea is to provide a completely immutable and auditable banking infrastructure. Blockchain provides the most compelling chain of custody application for the industry.
The greatest risks posed by the cannabis industry to the financial system are the source of funds and the tracking of products. Our goal is to bridge this gap and support the financial system by providing a platform using blockchain to link product and money together.
Volkman: At some point, some form of SAFE Banking Act (allowing banks to serve the cannabis industry) will become law. Once done, will this make all of the aforementioned use cases for crypto/blockchain obsolete for the pot industry?
Lozzi: Let’s separate crypto and blockchain. I agree, SAFE Banking will come to life at some point, then decriminalization will follow. I believe the reality surrounding these legislative reforms will strengthen compliance and increase the need to manage cannabis programs across the financial system.
It goes without saying that the SAFE Banking Act will increase the number of financial institutions participating in the industry, but it will not remove the compliance and oversight needed to support cannabis customers.
Blockchain and the chain of custody it brings will be even more valuable and beneficial to both industry and the financial system. Crypto will have its own adoption path, where acceptance and use will be driven by access and convenience, generally speaking. Crypto offers flexibility and speed of payment, which in business are important aspects of successful operations.
Volkman: It’s notoriously difficult for marijuana companies to make money. Do you think crypto/blockchain technology could be the “game changer” pushing them towards mainstream profitability?
Lozzi: I don’t think blockchain technology alone is the answer. Punitive culture and excise taxes, as well as IRS Code Section 280E, should be reduced and eliminated, respectively. These factors are unfortunately not related to any blockchain technology and innovation.
Volkman: Technically, cannabis remains illegal at the federal level. What challenges does this present for the adoption of crypto/blockchain solutions by pot companies?
Lozzi: Let’s look at these solutions separately.
Crypto carries a negative stigma, associated with nefarious activity. The federal issues ultimately call into question the compliance program and the quality of the infrastructure put in place to manage the complexity of cannabis. Blockchain solutions can support compliance and mitigate risk by providing program immutability and auditability.
The use of crypto will need to live in a strong and compliant infrastructure so that the chain of custody regarding the flow of money can be supported according to regulatory requirements and guidelines.
Volkman: Cryptocurrencies have been going through tough times lately, with many losing a good chunk of their value. Can they still be useful to pot businesses even in their weakened state?
Lozzi: As I had mentioned above, I think over time the winner for this industry and all other industries will be stablecoins. A quick and easy way to transact and store value, while having the ability to bank 24/7.
Personally, I also believe in Bitcoin, but my advice to any business owner is to mitigate as much risk as possible, and stablecoins are designed to do that for you. The industry is already quite volatile, so it’s best to get rid of extra volatility where you can.