Legal marijuana and virtual currency: natural allies in search of growth?
When Colorado and Washington voted to legalize recreational marijuana in 2012, pot lovers weren't the only ones with something to smoke about. Virtual currency supporters saw pot legalization boosting the need for alternative payments. Marijuana became technically legal in the two states, but its legal and social status remained murky to the public at large.
Banks and credit card companies were reluctant to be in the pot business, forcing marijuana retailers to only accept cash. This proved problematic. Merchants had to pay employees in cash, they had to purchase money orders to buy supplies and pay bills, they faced security issues associated with cash, and customers were not in the habit of using cash.
Virtual currency, a growing form of alternative payment, offers a cashless solution.
Virtual currency was and still is a nascent industry facing dual challenges about public acceptance and the need for virtual currency education.
Are the two incipient industries — marijuana and virtual currency — natural allies in their quest for growth and public acceptance?
Nearly three years after Colorado and Washington legalized recreational marijuana, it's safe to say the marijuana industry continues to grow (no pun intended) and virtual currency is playing a supporting role.
By accepting virtual currency, pot merchants can overcome the inconvenience of only accepting cash. They can invite customers to download a virtual wallet to send or receive virtual currency payments.
But the relationship between the two industries hasn't been without hiccups.
Bitcoin, the leading virtual currency, has had reason to distance itself from the drug trade following the highly-publicized Silk Road scandal. BitPay and Coinbase, two of the largest bitcoin exchanges, have declined to offer their services to the pot trade.
As a result, marijuana merchants have had to find bitcoin payment services willing to do business with them.
And in response to this need, some marijuana entrepreneurs went as far as to establish pot-themed virtual currencies with names like CannabisCoin, Potcoin and MaryjaneCoin.
Vending machines that accept virtual currency have emerged as an option for medical marijuana dispensaries. A merchandise vending machine with state-of-the-art electronic controls can be retrofitted with an interface for virtual currency payment while software can manage the payments and activate the vends.
This month, American Green Inc., a publicly-traded medical marijuana dispensary, announced orders for five ''ZaZZ'' vending machines in Seattle. The machines carry cannabis, vaporizer pens, hemp-oil energy drinks and other merchandise — and they accept bitcoin. A buyer's medical marijuana license is checked by a dispensary employee before that person can use the machine, which uses an ID-card scanner.
The first purchase from a ZaZZ machine was for 1 gram of a strain dubbed ''Girl Scout Cookies'' for $15, inside Seattle Caregivers medical marijuana dispensary, according to Reuters.
An American Green spokesman said five ZaZZ machines are planned for Washington, with more slated for Colorado, California, Michigan, Rhode Island and Alaska, all among the 23 states where medical marijuana is legal.
Other marijuana merchants are finding it makes sense to give customers the chance to use bitcoin — the most established virtual currency — and make bitcoin available onsite by installing a virtual currency ATM.
Virtual currency ATMs have come on the scene in the last year. For retailers, the virtual currency ATM offers a way to let customers buy digital currency and spend it at the store.
One virtual currency ATM operator, Ann Arbor, Michigan-based company, Bitcoin Brands Inc., has found medical marijuana dispensaries among the most receptive retail customers. Peter Klamka, owner of Bitcoin Brands, sees the bitcoin ATM as a natural fit for medical marijuana dispensaries.
Bitcoin Brands has placed a bitcoin ATM at one medical marijuana dispensary and is in the process of placing another two in the Grand Rapids area.
Klamka's bitcoin ATM, made by Portland, Oregon-based Skyhook, provides the customer a QR code that the clerk scans using a bitcoin payment tablet that Klamka provides them.
''The (payment) technology is like a gift card,'' Klamka said. Coinify, a Copenhagen, Denmark-based bitcoin service provider, processes the payment.
''A marijuana customer can buy bitcoin, buy whatever they want in the dispensary, and pay using bitcoin and leave,'' said Klamka, who calls his bitcoin payment system ''bitMD.'' As the name of his service indicates, he envisions pharmacies eventually signing on to accept bitcoin payments for prescriptions and medical testing services.
With a bitcoin ATM onsite, the dispensary also gets a percentage of the sales from the bitcoin machine, Klamka said.
Klamka has provided bitcoin processing tablets free to his first three medical marijuana dispensaries to encourage them to have bitcoin ATMs.
''It is a very modest investment for me building this business,'' he said.
He does not know how much longer he will provide the tablets for free as the business grows.
Klamka also offers to sell the bitcoin ATM to locations outright (machines go for $1,500). So far, the dispensaries have preferred to take a commission and let Klamka operate the machine.
If and when credit card acceptance becomes easier for medical marijuana buyers, Klamka said bitcoin transactions are still faster and don't have transaction fees or potential chargebacks.
Klamka does not plan to add other virtual currencies to his ATMs, including the pot-themed currencies mentioned above. ''I think that marijuana dispensaries will either use bitcoin or nothing,'' Klamka said. ''I think ultimately there will be a traditional banking solution for legal marijuana stores and bitcoin will be another payment option.
''Cryptocurrencies in the marijuana space are not a given,'' he said. ''I think that customers and dispensary owners would opt for bitcoin, if anything, and only as a work-around to traditional banking.
''It (bitcoin) really needs to be in niche markets, and it's got to be sold,'' he said.
Virtual currency continues to wage a campaign to educate the public about the benefits of alternative payment technology. Its supporters have found medical marijuana to be an ally in the quest to build acceptance.