The regulation-strapped but cash-rich weed industry is fertile ground for fintech innovation.

Legalization of marijuana, for medical or recreational use, has not addressed a very basic need of the industry – access to banking services. Due to the designation of weed under the Controlled Substances Act, the industry is still considered illegal under US federal law. As a result, banks shun the marijuana industry, thus relegating it to a banking desert. (Forbes)

Even cards avoid the sector. “Transactions in the U.S. involving the purchase or trade of marijuana are not permitted on the Visa network, until such time as federal law allows,” according to VISA (NYSE: V).

Can fintechs step in where banks fear to tread?

Being a banking pariah, the weed industry is forced to conduct its business in cash. Consider the implications: In California, the cannabis industry is worth $3.1 billion. Across the country, legal retail marijuana sales were over $8.5 billion in 2018 and may have exceeded $11 billion in 2019. However, the cannabis industry participants have to receive and pay most of their business accounts in cash. The problem is getting acute – currently, 11 states consider recreational use of marijuana as legal, while 32 states have legalized medical use.

For cannabis, cash is king…unfortunately

It’s a peculiar dichotomy. On the one hand, technological innovation by fintechs is upending the game for banks while cryptocurrencies now command market capitalizations in billions of dollars. On the other hand, an entire industry is relegated to the antiquated mode of conducting its business in cash.

There’s another dichotomy – one within the weed industry itself. The industry is strictly regulated “from seed to sale,” and all players are accountable for every gram of weed inventory. As a result retailers and suppliers have had to instal sophisticated systems and equipment for recording, reporting and compliance procedures. Yet, all this regulatory rigmarole is rendered toothless if ultimately it is cash that runs through the industry veins. Cash may be king, but it is also the source of many evils.

If the industry could migrate to electronic payments, there would a huge regulatory pay-off for government, not to mention better tax collections. For the industry, it would mean getting rid of the huge headache of accounting, stowing and handling of cash securely.

And herein lies the opportunity for fintechs.

They should step forward to convert cannabis cash into digital dollars.

Acknowledgment: Cannabis Payments Are Ripe For Fintech Innovation, by Ben Cukier, Forbes

Related Story: Simplifya Exec John Vardaman: Cannabis and Banking Bring Transparency

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