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If you follow me on Twitter, you may have noticed that lately I’ve written less about crypto and more about cannabis. I spent much of the last two months working on my new cover story for Fortune’s February issue, “The Marijuana Billionaire Who Doesn’t Smoke Weed.”
No, the words “Bitcoin” or “cryptocurrency” do not appear anywhere in the story. Still, throughout my reporting, I was constantly struck by how alike the crypto and cannabis communities seemed—both were caught up in market bubbles that recently popped; both know the pain of constant regulatory headaches—even as they operated on seemingly parallel planes. If one were to draw a Venn diagram, the circles would overlap only slightly.
That got me thinking: Perhaps cryptocurrency and cannabis could learn a little something from each other. After all, with cryptocurrency we spend a lot of time talking about cross-border transactions; for my cannabis story, I spent some time actually crossing borders. For instance, here’s what happened when I returned from Canada with Brendan Kennedy, the American CEO of British Columbia-based cannabis producer Tilray:
As far as I know, blockchain has not yet made it easier for people to traverse borders, but the experience does underscore just how powerful it is to have a currency that circumvents central authorities who could otherwise stop money from leaving or entering. In fact, many cannabis businesses that operate in the U.S. struggle to get financial services; plenty of banks, citing the enduring federal ban on marijuana, refuse to work with companies that grow or sell the drug even in states that have legalized weed. That means unbanked cannabis businesses are forced to pay their taxes in cash—dropping it off in suitcases or garbage bags—and also invest in security to guard the heaps of it sitting at dispensaries.
It also makes cryptocurrency a natural fit for the legal cannabis industry, providing it with banking services that need not navigate discrepancies between state and federal law (the way Bitcoin has also facilitated the illegal drug trade). And yet the cryptocurrency industry has not quite reached a standard of security and stability that would make it a suitable business currency even for cannabis companies walking that gray line of legality.
A couple of months ago, I spoke with Jon Brandon, the CEO of Foria Wellness, a company that sells cannabis-infused massage oils and “aphrodisiacs” in states where it’s legally allowed. He described the difficulty of finding banks that would do business with the company, and said he’d considered cryptocurrency as an alternative option, but ultimately decided against it. His thought process: “I gotta take the crypto risk on top of a sex and drug business?”
One thing that seems to be working in the cannabis industry’s favor: As it has grown up, it has also become more centralized, moving from street dealers and backyard growers to multibillion dollar international corporations with industrial farming operations. That mainstreaming has opened the market to investors, with Tilray last summer becoming the first cannabis producer to go public on the Nasdaq, and also helped sway public opinion—resulting in laws steadily changing to reflect greater acceptance.
Even as Bitcoin diehards and cryptocurrency traditionalists insist that decentralization is core to the technology’s success, they may eventually have to confront a trade-off: mainstream acceptance may depend on the emergence of more polished—and yes, centralized—institutions who play by the rules. Indeed, that seems to be exactly what the SEC wants from a Bitcoin ETF it would be willing to approve—a “centralized, regulatory data source” and “a surveillance-sharing agreement with a regulated, bitcoin-related market of significant size.” Wall Street and other investors likely feel the same way.
For now, cryptocurrency seems to be struggling to corner even the obvious marijuana market: PotCoin, which bills itself as a “digital currency for the cannabis industry,” fluctuates between one and two cents.