Cryptic Coinage T h e l o w v i a b i l i t y, h i g h r i s k o f c r y p t o c u r r e n c i e s m ay n o t b e t h e best banking solution By Julie Hamill, Attorney
he cannabis industry needs a banking solution and cryptocurrencies—blockchain-based digital tokens or coins that enable transactions without government or other intermediary—are gaining popularity. Though a decentralized currency untethered to a bank or government seems like an attractive alternative to using cash, cryptocurrencies are unlikely to be the knight in shining armor to rescue the cannabis industry due to their high risk and low viability. There has been no widespread adoption of any particular cannabis coin in the industry, and even if there were, cryptocurrencies in the cannabis space are too unstable to be used to replace dollars in everyday transactions. The problems and risks inherent in cryptocurrencies increase when cannabis is added to the mix. The federal government treats transactions involving cryptocurrency and controlled substances harshly, as demonstrated by the prosecution of Silk Road’s alleged creator Ross Ulbricht, who is currently serving a life sentence without the possibility of parole. 20
Th e Da n ge rs of C ryp toc u rre n cy Cryptocurrencies can be purchased on the secondary market via exchanges and initial coin offerings (ICOs), which companies are increasingly using to raise capital. Many ICOs follow the same pattern: (1) create a media blitz using a social media “influencer” to hype the crypto, (2) release a whitepaper touting a yet-to-be-built ecosystem where the token will be utilized and emphasizing secondary market trading potential for the token, (3) at the peak of the hype, open the token sale to raise money, and (4) enable trade on secondary markets. Cryptocurrency markets provide substantially less investor protection “For a than traditional securities markets, c ry p t o c u r r e n cy t o with correspondingly be v i a b l e , i t m u s t greater opportunities for be w i d e ly a c c e p te d fraud and manipulation. Cryptocurrencies a n d u s e d by n e a r ly are highly volatile a l l p l a ye r s i n i t s and risky—a $1,000 b u s i n e s s n et w o r k . investment can become $100,000 overnight, but I n the c a n n a b i s the reverse is also true. s pa c e th a t i n c l u d e s The Internal Revenue Service (IRS) and the U.S. c u s t o m e r s , r eta i l e r s , Securities and Exchange c u lt i va t o r s , Commission (SEC) are m a n u fa c t u r e r s , zeroing in on ICOs and investors. In December, l a n d l o r d s , a tt o r n ey s , the SEC halted an ICO d o c t o r s a n d ta x i n g by Munchee Inc. for agencies.” securities law violations.