Uncertain legal status of financial transactions in marijuana industry lead to bitcoin, cryptocurrency development
By Steve Brachmann
September 2, 2017
On July 27th, the U.S. Senate Committee on Appropriations held a hearing of the full committee to markup several pieces of legislation, including S.1662, the Commerce, Justice, Science, and Related Agencies Appropriations Act for 2018. News reports indicate that, during that hearing, the Senate appropriations committee approved an amendment which would reduce the ability of federal-level law enforcement agencies to interfere with state laws on the medicinal use of marijuana. This amendment comes at a time during which the nascent medical marijuana industry looks as though it’s turning to cryptocurrency in response to the questionable legal status of medical marijuana businesses.
Sen. Patrick Leahy (D-VT) proposed the amendment to allow states to implement medical marijuana laws. The amendment would ensure that none of the funds made available through the appropriations act would be used to prevent any of 46 of the 50 United States from implementing any law authorizing the use, distribution, possession or cultivation of medical marijuana. The amendment does not include the states of Idaho, Kansas, Nebraska or South Dakota, but it does include the District of Columbia, Puerto Rico and Guam.
An article on the medical marijuana amendment published by Congressional blog TheHill quotes Leahy as saying:
“The federal government can’t investigate everything and shouldn’t, and I don’t want them pursuing medical marijuana patients who are following state law… We have more important things for the Department of Justice to do than tracking down doctors or epileptics using medical marijuana legally in their state.”
A press release issued in early August by financial news and publishing company NetworkNewsWire reflects the positive response of the medical marijuana industry to the news of the amendment to the 2018 Commerce appropriations bill. The press release discusses the business activities of medical marijuana firms across the world and cites to polls conducted by both Gallup and CBS News which reflects the changing views of the American public on the legality of marijuana, a sentiment which has become more positive as more states move to legalize either the recreational or the medicinal use of marijuana.
One of the companies cited by the NetworkNewsWire press release as being an innovator in the field of marijuana payments is SinglePoint Inc., a full-service mobile technology provider headquartered in Phoenix, AZ, which also operates a cannabis dispensary hub subsidiary known as SingleSeed. SinglePoint reportedly closed upon a $1 million promissory note with an institutional investor this June and plans to invest the proceeds into the development of a bitcoin solution to conduct non-cash transactions for marijuana products. Bitcoin transaction solutions are also being developed by ChineseInvestors.com Inc., a Chinese-language financial information firm with an increasing presence in the global marijuana industry.
Bitcoin payments for marijuana and related products seem to be developing in response to an industry-wide issue regarding the bankability of marijuana business activities caused by tensions between state and federal level laws on the subject. Even as states increasingly vote for the legalization of marijuana, the plant is still considered a Schedule I drug under the Controlled Substances Act (CSA) which is enforced by the Drug Enforcement Agency (DEA). The tenuous legality of marijuana at the federal level has led to the growth of an industry in which many businesses have to sit on cash without being able to open business accounts with banking institutions which have been concerned with their federal-level legal liability if they accept deposits from marijuana businesses.
The concerns of financial institutions over federal regulations on marijuana don’t seem to be unfounded given the effects of the CSA and marijuana’s Schedule I status on intellectual property owners in the space. The uncertain status of federal registrations for marijuana trademarks is the result of the confluence of the CSA along with 37 CFR 2.69, the statute governing trademarks sought on the sale or transportation of any product which is regulated by an act of Congress. No such regulatory restrictions seem to affect the patenting of medical marijuana-related technologies, however. Through this January, the U.S. Patent and Trademark Office has issued dozens of patents, and published almost as many patent applications, on medical marijuana technologies, including a patent covering a controlled-release chewing gum containing cannabinoids developed by AXIM Biotech.
Increasingly, bitcoin and related cryptocurrencies are becoming the choice for most financial transactions within the nascent marijuana industry as the sector increases in value. North American marijuana sales reached $6.7 billion during 2016 and were expected to rise up to $20.2 billion annually by the year 2021. This June, Bloomberg published an article discussing how SinglePoint and Seattle, WA-based cannabis point-of-sale firm POSaBIT were utilizing bitcoin strategies to conduct transactions for cannabis products while taking steps to comply with federal and state regulations.
For marijuana and other industries that may face regulatory risks which could impede their ability to conduct business, bitcoin offers various benefits. A blog post published by payment processing company Bankcard Brokers discusses bitcoin’s anonymity
and availability to high risk industries, as well as the fact that bitcoin transactions cannot be reversed except by the party receiving the bitcoin.
Bitcoin can be exchanged into a variety of other cryptocurrencies and one such cryptocurrency is designed specifically for the cannabis industry. PotCoin is seeking to position itself as the standard form of cryptocurrency payment for transactions in the legalized marijuana industry. PotCoin has proven to be a volatile investment, seeing a 23 percent dip this March in response to news that PotCoin sponsored a recent trip by Dennis Rodman to North Korea; this major decline came one day after PotCoin’s value increased by a dramatic 97 percent. Other types of cryptocurrencies being developed for the marijuana industry include CannabisCoin and WeedCoin.
Bitcoin’s status as a decentralized system for financial transactions stands in some contrast to the current activities being undertaken by a variety of entities seeking patents in the sector. A recent article published by CoinDesk notes that the USPTO published 390 patent applications related to blockchain tech, the underlying distributed ledger technology supporting bitcoin and other cryptocurrencies, between January and July of this year. That represented a 90 percent increase over the number of blockchain-related patent applications published during the same period in 2016. A recent U.S. patent application filed by bitcoin exchange company Coinbase discusses an innovative security system for digital assets such as bitcoin. This March, Reuters reported that the man claiming to be bitcoin’s creator has filed more than 70 patent applications in the UK to protect blockchain-related tech like medical document storage and WiFi security systems.