As more states move to legalize marijuana, Congress’ lack of enthusiasm for legally allowing banks to do business for cannabis businesses underlines a serious concern.
Despite the White House approving new Treasury Department rules that would make it easier for banks to do business with marijuana dispensaries and new directions for the U.S. attorneys not to pursue banks that do business with legal marijuana businesses — as long as the dealings are within the new guidelines — the passage of HR 2652, which would create a permanent legal exception for marijuana-related banking, has earned nothing more than scoff from most in Congress.
This lack of interest by the Congress has helped to exacerbate an already dangerous situation. In a series of robbery attempts on Colorado medical dispensaries, one thief dressed as a delivery man pulled a can of bear mace on the store’s employees before fleeing after being pepper sprayed. Another hacked through the walls of a dispensary with an ax and attacked the safe with a circular saw. A third kicked in the front door of a dispensary at gunpoint while an accomplice kicked in a back door and fled with more than $10,000 worth of cannabis.
Due to marijuana’s federal government status as a Schedule I controlled drug — in which the federal government recognizes that the drug has no currently acceptable medical use and the drug has a high potential for abuse — medical and recreational marijuana businesses are forced to run a cash-only business model, even though they’re operating legally on the state level. With security, banking and financial services — such as credit card processing — being denied to the industry, legalized marijuana has grown to be a lucrative target for criminals.
“You hit a 7-Eleven, you’ll get 20 bucks. You hit a dispensary, you’ll get $300,000 on a good day,” said Mitch Morrissey, district attorney for Denver. “It’s only a matter of time before someone gets shot.”
Setting up a new proxy
Two new cryptocurrencies could help mitigate the risk. The first digital currencies dedicated to the drug market, PotCoin and DopeCoin, join the more than 140 bitcoin copycats that have appeared since the bitcoin exceeded a valuation of $1,000 per coin last year. While some, like Coinye, became infamous for legal difficulties, and others such as Dogecoin, Auroracoin and MazaCoin have received respect for their philanthropic or charitable intentions and actions, neither the glut of new digital coins onto the marketplace nor the collapse of Mt.Gox, which was once the world’s largest exchange hub for cryptocurrency, have dampened the public’s fascination with these pieces of monetized computer code.
While bitcoin prices are currently more than $200 off the pre-Mt.Gox crash prices, the bitcoin is holding steady with modest price fluctuations.
PotCoin hopes to become the de facto currency of the state-regulated marijuana industry. “Our goal is to gather all the people in the world who want to legalize Marijuana and launch an industry specific crypto currency to help secure and facilitate transactions for our community with each participant anchored in this awesome new economy,” PotCoin says on its website.
“The newly legalized Marijuana industry is calling out for its own distinct crypto-currency, so PotCoin was designed to empower, secure and facilitate the Cannabis community; medicinal and recreational alike. At every level of the Cannabis industry users can trust PotCoin to lend credibility and stability thanks to the power of very large numbers.”
Founded Jan. 21 at 4:20 am, PotCoin was created by three innovators: “Hasoshi,” “Mr. Jones” and “Smokemon 514;” all of whom use pseudonyms to disguise their involvement with PotCoin from their other business relations. The three all claim to be successful startup entrepreneurs that have headed successful businesses and been influential in several major fundraising schemes, including raising money for Snoop Lion’s children’s charity.
With Congress dragging its feet on HR 2652, PotCoin seeks to become a legitimate proxy to the banking industry for marijuana dispensaries. If the dispensaries digitized their cash supplies as PotCoins, it would reduce the impetus for thieves to attack these stores.
New approach to buying drugs the old-fashioned way
DopeCoin, on the other hand, wants to create an alternative currency for drug purchases that is stronger and more secure than the bitcoin. Unlike PotCoin, which maintains a network database that allows merchants to link users with accounts, and bitcoin, which now allows payment requests to be signed to ensure that bitcoins are going to the proper recipients, DopeCoin allows for “coin mixing.” This means that the DopeCoin a user deposits into his account may not be the coin he withdraws, breaking the line of custody and making it difficult to trace individual coins.
“It’s quite edgy,” said “Dopey,” the developer of the DopeCoin, who chooses to use an alias to protect his identity. “It’s what puts us above the competition that has targeted just the legal marijuana market. DopeCoin was designed for the billion-dollar drug marketplace.
“We’re the bad boys of cryptocurrency,” continued Dopey to The Huffington Post. “I would never advocate illegal drug use or any illegal activity to do with this currency. This is a digital currency created by the people for the people and what people do with it has the same consequences and responsibilities that they would have for the American dollar.”
Currently, 20 states and Washington, D.C., allow medicinal marijuana use, with Colorado and Washington state also permitting recreational use. In the first month that recreational use was legal, Colorado saw $14 million in cannabis sales. With up to 12 states moving toward recreational legalization in the upcoming years, legal marijuana sales in the United States could reach $10 billion by 2018.
Warning signs
Despite this, the trend toward using digital currencies for drug purchases may be waning. Besides the fact that more people are realizing that cryptocurrencies are both not truly anonymous and capable of recording not just one illegal transaction, but all illegal transactions under an account, the news of black market sites folding and allegedly stealing users’ coins are starting to deter new users.
The February report that the Silk Road 2.0 lost $2.7 million in bitcoins due to the same security flaw that led to Mt.Gox’s bankruptcy has seriously hindered confidence in virtual currency as a valid means to procure contraband. With the security exploit being ruled out as a factor in the Silk Road loss — Mt.Gox’s use of custom software expanded the security hole in a way that wouldn’t be applicable to Silk Road — many experts now believe that the administration of Silk Road willingly and unknowingly handed over the bitcoins to the thieves or, more likely, took the bitcoins themselves.
“When you introduce a third party holding on to people’s funds, it’s absolutely antithetical to the idea of Bitcoin,” said Evan Rose, CEO of Bitcoin ATM maker Genesis. “You’re giving someone cash over the Internet that you’ll never be able to get back.”