The US Financial Crimes Enforcement Network (FinCEN) released new guidance on 14th February for financial institutions seeking to provide services to marijuana-related businesses, ending a long silence that has caused confusion among those in both industries.
FinCEN indicated that financial services companies can now work with marijuana-related businesses in states where the drug has been legalized for medical or recreational purposes. This is provided it is “in a manner consistent with their obligations to know their customers and report possible criminal activity”.
“Providing clarity in this context should enhance the availability of financial services for marijuana businesses. This would promote greater financial transparency in the marijuana industry and mitigate the dangers associated with conducting an all-cash business.”
Speaking to CoinDesk, a representative of Spokane, Washington-based dispensary Kouchlock Productions, which accepts bitcoin, was elated about the news:
“This is a huge step for the marijuana industry and for our country financially.”
The company also said it was equally excited about the possibility of working with bitcoin payment processors for its ongoing trial.
However, while the announcement opens the door for all manner of financial services providers, from banks to credit cards to bitcoin payment processors, to potentially serve the industry, bitcoin payment businesses are split about a potential path forward.
Major processors respond
Speaking to CoinDesk, Georgia-based processor BitPay indicated that its policy of not working with marijuana businesses would remain unchanged.
A company spokesperson explained:
“The Merchant Terms of Use for BitPay specify that all businesses must adhere to US federal law, and marijuana is an item that is prohibited to sell nationally.”
Its San Francisco-based competitor Coinbase seemed more open to adjusting its position, saying:
“We are reviewing FinCEN’s updated guidance and our policy on this subject.”
Coinbase had previously declined to work with marijuana merchants, citing the drug’s federal ban as the reason.
However, should it decide to adapt its policies, the specific terms for dealing with marijuana businesses may prove onerous for the still-growing company. FinCEN listed eight areas where it says financial services companies must conduct due diligence in regards to marijuana businesses.
Impact on bitcoin use
Recently, marijuana businesses in the US had begun to turn to bitcoin as a potential solution to their inability to work with major financial institutions. As such, some in the virtual currency community saw the industry as one that could develop into a powerful use case that would bring new customers and merchants into the ecosystem.
As with the porn industry, which is also embracing bitcoin, marijuana purchasers favor privacy, and are technologically savvy. Further, websites like Silk Road and Black Market Reloaded lead some members of this community to become early adopters of the virtual currency.
However, the announcements by BitPay and Coinbase are notable as the industry could fail to realize this potential.
Should banks and traditional financial services providers move to develop a presence in this industry, bitcoin would likely lose an early mover advantage to a burgeoning market.
Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay.
Image credit: Marijuana via Shutterstock