Where Pot Entrepreneurs Go When the Banks Say No | Hacker News Reader

Where Pot Entrepreneurs Go When the Banks Say No

nytimes.com

164 pointsdeadbunny181 comments

A former coworker has a relative who became a CFO at a Colorado dispensary. This was in the early days, and it was the wild-wild-west. Turns out employees were transporting the daily deposits in their car, and the business was storing it in some file cabinets in the office. Obviously not ideal.

So he talked to a couple of armored-car companies about setting up a pickup schedule, and they wouldn't touch the business because they didn't want to take the chance that any dispensary money would get intermingled with regular banking money when in the back of their trucks, and thus invoke the wrath of the feds.

Looking at the pile of cash they had, he just said "Why don't we just buy our own trucks?" and they set up a subsidiary that provides armored car services to the cannabis industry.

This is an amazing anecdote. Spinning up a side company to solve a need you have as a company that isn’t addressed by the market is the winning lottery ticket of entrepreneurship (you have validated the product/service because you need the product/service to conduct your original business, you are intimately familiar with what features you need to offer, how much you can afford to charge for it, etc)

Also, "scratching your own itch" is always the best startup method because you know intimately if your proposed solution really is a viable solution in the first place. It's then just a matter of pricing and cost, rinse and repeat.

And execution. Knowing what you want doesn't guarantee you can deliver it.

Otherwise your point (and parents) is a good one - certainly a good indicator that you might really be onto something.

This is the story of Interactive Intelligence, a company I worked for long ago. They were going to build children's software, but had trouble setting up a phone system. So they decided to build phone systems, and later sold for 1.3B

This is basically how Amazon thinks (e.g. AWS, FBA)

I agree with AWS but how did FBA solve problems for amazon internally?

You have it backwards. AWS didn't solve anything for Amazon internally (it's actually kinda funny how tricky moving internal systems onto AWS is). FBA and AWS are Amazon taking systems that they already had to build for its own use and selling them as a product/service to external companies. FBA is just a way to use a portion of Amazon's existing distribution system. AWS is a way to use Amazon's existing tech platform(s).

Fulfillment solves warehousing, inventory, and delivery of Amazon packages. Amazon built out their own network. FBA is Amazon renting out that network to third parties - whether they sell on Amazon or on their own ecommerce site.

One possibility related to commingled SKUs would be that they can control coverage of items in warehouses by controlling which warehouse(s) sellers and their product to.

To bring it back to the article, it's a bit like how CannaSOS (think a mix of Amazon & Rotten Tomatoes for weed) are stepping up and developing a crypto token & platform specifically for the purpose of buying/selling marijuana.

My neighbor of mine used to work as a bookie, letting people make illegal bets on sporting events. He said the toughest part about his business was the piles of cash he had to manage. He said once you take in around $500K USD (or something like that), you have so much physical cash that it prevents you from scaling. He needed to keep the cash on hand to pay the winners, and getting robbed would probably have been fatal. That gave me a new appreciation for digital banking.

There's a reason why cash is so unpopular, nobody wants to use it anymore.

The only people here who still use cash are those who have something to hide.

First off, everyone has something to hide. Otherwise people would be fine with allowing the police to randomly search their houses. See: Three Felonies a Day [0]

A few years ago I went back to carrying more cash. I had realized that debt cards don't provide enough protection against the card info from being stolen (it could take a week to get your funds back). Credit cards have more protection, but after having to replace my cards multiple times, it was just easier to pay for my lunch and gas using cash and not have the hassle of contacting all my recurring payment businesses repeatedly.

[0] https://www.wsj.com/articles/SB10001424052748704471504574438...

Lots of people use cash because it's better for the businesses that receive it to not have to pay a significant processing fee of 2%+. When a restaurant might only run on 5% margins, 2% off the top is 40% of their profits.

Similarly, now that cannabis is legal (for both recreational and medical use) in Nevada, companies that already handle large amounts of cash are well placed to take advantage of this. As it turns out, there's already a large industry that deals with large amounts of cash, which means there's a whole ecosystem out there that supports cash.

That industry?

Las Vegas Casinos.

> Similarly, now that cannabis is legal in Nevada

Cannabis is no longer illegal under Nevada state law. As Nevada has not achieved independence from the US federal government, cannabis is not, however, legal in Nevada.

This is important in he context of your comment because, given the history of the Las Vegas Casino industry, I don't think they would want to wave a red flag of what is—from a federal perspective—organized crime in the face of federal authorities.

I have a relative who runs a set of independent ATMs, which obviously requires a lot of physical cash. He's been doing it for over 20 years now, but it's gotten harder and harder to find banks that will provide him with the cash. It's his money in his accounts, but many of them outright refuse to provide it in cash.

It's not so much that they mind the competition in the ATM business, it's that the regulations on handling large amounts of cash have gotten more and more involved, to the point it's just not worth it to them to do it.

He's had to change banks a number of times over the years, but now he's with a smaller local bank that he has a personal relationship with the management. Still a hassle, but at least he can run his cash-intense business.

I'm actually surprised if it's legal for a bank to refuse to provide cash withdrawals. Unless it's a case of "we'll do this now, because we have to, but we're also closing your account since we're allowed to choose out customers and your business isn't worth the hassle for us."

>I'm actually surprised if it's legal for a bank to refuse to provide cash withdrawals

There are online-only banks now like Simple and Ally; they obviously can't provide cash. If they can deny cash why can't other banks?

That's a very good question. I was thinking of legal tender laws, which I understand to usually stipulate that any debt incurred must be payable in cash money issued by the relevant state.

Of course, there are a number of ambiguities there, so maybe it is possible to run a bank without providing cash withdrawals and still be on the right side of the law in the US.

if they dont have a bank of cash available, are they really a bank? (yes, i believe it's a bank too, but to me it's a head scratcher)

BECU (Boeing Employees Credit Union, WA State) only has tellers handle cash out of their main office, in Tukwila. Every single other "branch" is a Service Center with ATMs. They will help you get a loan or print a cashier's check, but send you to the ATM for any withdrawals.

Can you make money out of running a set of independent ATM's? Do people use ATM's?

Vending machines are still a thing, too. Similar model. All those $5.99 transaction fees add up. Even at 2.99, the machine pays itself off in a year with ~5 transactions a day.

His net is similar to a San Francisco programmer, but he only really works one day a week.

But as I said, he's been doing it for more than 20 years and his locations are prime.

Amortize the time he took figuring it out / getting his systems in place across that weekly schedule, though. I bet even after 20 years that's still closer to two days a week. ;)

I just wonder when will this nonsense ("banks saying no") end and when a financial system at least as free as cash and as quick and convenient as just using debit cards emerge. It seems that we have came to a point when we need to separate banking from state and police the way church has gotten separated from them earlier. That's a pity BitCoin has failed to do this. Hopefully Monero or something new will succeed once and set the people free...

The problem is not the banking system, it's that businesses can be legal in states while being illegal under federal law. Any company with business across states is at risk dealing with those companies. Banking is heavily regulated for a reason (terrorist financing, money laundering, fraud) and I doubt many would appreciate if you stop banking regulation altogether. The only solution I see here is to change federal law.

> businesses can be legal in states while being illegal under federal law

It still sounds a way ridiculous for a thing to be legal and illegal at the same time. There ought to be a non-ambiguous mechanism to decide whether a business is legal or not. As long as the feds let the states decide on their own they shouldn't consider something to be a crime as long as it is done in a state where it is legal. E.g. pot money from Colorado should be considered perfectly clean while pot money from Idaho can be treated as criminal. Doesn't this make sense?

> Banking is heavily regulated for a reason (terrorist financing

Doesn't seem to help much, terrorists still get everything they need.

> It still sounds a way ridiculous for a thing to be legal and illegal at the same time.

It's not legal and illegal at the same time. It is not prohibited by state law, and prohibited by federal law. It is, therefore, illegal, plain and simple.

Much like California's prison policies few years back: they were exactly what state law specified, but violated federal law. They weren't in some weird legal-illegal contradictory state, they were illegal.

> As long as the feds let the states decide on their own

Federal law does not allow states to decide on their own, in fact, it prohibits them from doing so (OTOH, on state authorized medical marijuana, there is also federal law tied to spending bills for the last several years prohibiting federal enforcement that interferes with the state implementation, but an enforcement moratorium isn't legalization.)

In a unitary state (i.e. one without a federal system) you don't have this particular source of ambiguity - the central government passes laws, and they define what's legal [1]. The USA, however, has a federal system; the essence of that system is a separate of powers between Federal and state governments, which means you also have conflicts of power between Federal and state governments over whose law applies. Drug policy is a classic example; so was segregation, for example.

In this case, the act in question is the Controlled Substances Act, which makes a whole host of drug offenses federal crimes. It was ruled constitutional [2] in the early 2000s, in response to a challenge from California pot growers obeying the local medical marijuana laws who were raided by the DEA.

That is supposed to be the mechanism by which to decide these questions; go to the Supreme Court. However, it turns out that even if states don't actively prevent the feds from enforcing drug laws, most of drug enforcement is in fact done by local police. If the SFPD isn't going to arrest you for smoking joints or selling potklava in Dolores Park, what's the federal government going to do? Put DEA agents on patrol on street corners in SF? Which leaves the federal government in the situation of having declared something illegal, but without having anywhere near the resources to enforce those laws - and the states passively encouraging disobedience of those laws.

Welcome, young folk, to the USA's first real-life (if small) constitutional crisis since Watergate!

[1] Leaving aside the conflict between constitutional law and regular law.

[2] Under the Commerce Clause, which I think is a bit of a stretch, but hey, that's the Commerce Clause for ya

> Under the Commerce Clause, which I think is a bit of a stretch, but hey, that's the Commerce Clause for ya

My favorite bit of the federal drug policy: magic mushrooms grew wild on my college campus since...forever. There was in no way, by any stretch of the imagination, 'interstate commerce' involved in any part of their life cycle yet it was a federal crime to pick them.

How's that work?

Because you picking said mushrooms affects interstate commerce, which after dude's new deal would fall under the control of the commerce clause. Prior to fdr only people and things in interstate commerce could be controlled

Bingo! In fact, the specific precedent cited by the Supreme Court for convicting marijuana growers in CA was the price controls on agricultural produce during the New Deal era.

> If the SFPD isn't going to arrest you for smoking joints or selling potklava in Dolores Park, what's the federal government going to do?

Target the successful state-authorized businesses (and key individuals in those businesses) selling pot (and those businesses, and key individuals in them, knowingly providing key services to those pot businesses) using, among other tools, RICO, the Continuing Criminal Enterprise law (popularly known as the “drug kingpin” law, with mandatory 20-year or, for.more successful businesses, life sentences), and the regular drug trafficking laws and the full panoply of civil and criminal forfeiture provisions associated with all of those laws.

A state-licensed industry isn't going to survive when most of the evidence that the feds need to secure major felony convictions—and seize all the assets of the businesses—against operators is available in state licensing and tax records, and a tiny bit more work lets them do the similar things to supporting businesses.

State-legal marijuana regulatory schemes—and businesses participating in them, even at one step removed from.the direct marijuana trade—exist through federal prosecutorial forbearance, and one of the reasons that state-legal marijuana businesses have had so much problem with access to banking and other support services is that there is wide knowledge of this fact and the lack of guarantee that that forbearance will continue indefinitely, with potentially devastating consequence for anyone who participated in that market even while the forbearance was the executive policy.

Which is exactly what they're threatening to do. But they can't stamp out more underground growers without local support, which leaves the feds in a policy bind - accept state defiance, or produce a hard-to-track and harder-to-constrain underground market.

> Welcome, young folk, to the USA's first real-life (if small) constitutional crisis since Watergate!

Not even close. For one thing, it's no more of a Constitutional crisis than the structurally similar sanctuary city movement, which is considerably older.

I think the scale of this is in practice substantially larger than the sanctuary city movement, as is the centrality of local cooperation to enforcement.

>> If the SFPD isn't going to arrest you for smoking joints or selling potklava in Dolores Park, what's the federal government going to do?

I would guess they would target the growers/large suppliers.

Are local, state-chartered banks with no branches outside of their home state just as squeamish when it comes to marijuana businesses?

Banks will be blacklisted if they finance drugdealers. The US war on drugs is no joke and it is international. If your bank participates in the global financial system it can't ignore the US.

Feds don't care, all they have to do is find a single dollar bill printed outside the state and they have jurisdiction.

Until the interstate banking act of 1994, all banks had branches only in their own state.

This is a perfect use case of a peer-to-peer digital currency, as outlined in the Bitcoin whitepaper. Cases like this is why cryptocurrencies even exist.

Technically Monero is indeed the closest as it's the only fungible coin, which is an essential property.

Monero, like most cryptos, is very volatile[1]. If I owned a small business and was looking to accept crypto payments, this price uncertainty would mean I'd only use it if I could quickly cash it out to something stable, most likely using something like BitPay, which then negates the p2p aspect. The prices on the shelves wouldn't be denominated in units of XMR either - they'd be in the local fiat.

For crypto payments to be accepted in businesses in the above scenario (and therefore become as mainstream as Visa or Mastercard), a robust stablecoin would be required, like what MakerDAO[2] is trying to achieve. Even though I've invested in them, I'd ultimately give them perhaps 10-20% chance of succeeding. Their product is incredibly hard to wrap your head around.

However, if Sai or some other stablecoin can achieve quick, cheap transactions, then it's possible that consumers will use it for everyday spending. Big "if" though.

[1] https://coinmarketcap.com/currencies/monero/

[2] https://makerdao.com/

Cryptocurrencies are very volatile because they are very new not because anything fundamentally worse compared to fiat.

If they some day will be accepted as a regular currency and you can buy everything you need with them then there is no reason to go back to local fiat. Then the prices on the shelves would indeed be denominated in units of XMR for example.

That is indeed a big if though.

The future is being downvoted on HN of all places.

I actually think having the state involved with banking is a good thing, overall. I think it represents that the economic part of that country is backed by the force of that country (meaning it's people are willing to fight to back up the value, if need be as well as their economic force). I think that aspect alone helps stabilize out the current economy where it could be so much more volatile.

However, when I think of the weed industry and banking, that's where I think a cryptocurrency has its best value, and will either find a foothold to dominate the financial industry, or at the very least provide the path of dynamic changes/experiments for those areas like this one where we don't want to risk the stability of all markets by "testing things out", but need to discover a path of progress to match the speed of innovation and technology.

I tend to think the latter (the former doesn't seem plausible as the inconveniences outweigh the benefits currently), but I would hope that the government realizes, all else being equal, their views on cannabis as a schedule 1 drug is costing them a ton of money they could be reliably tracking and that business would be happy to pay in taxes to avoid the current nightmare.

While this is true, they have to be weary of setting taxes too high. There is already a lot of infrastructure set up for the black market and you have to makes sure the taxes aren't so high that the legal market can't compete with the black market.

I don't see too much problem with state controlling money creation - sovereign currency gives the latitude for deficit spending which provides opportunity to invest in future economic growth. (I have no idea why many "fiscal conservatives" have a problem with debt-fuelled capital investment by government whilst embracing it as normal and indeed good practice in the private sphere.)

But separation of finance _industry_ from state - the incredible amount of policy influence that the industry has, to its own benefit and the detriment of just about everyone else except the very rich, to the extent that many politics-industry players, on all sides, are basically representatives of banks - yes, that would be some kind of holy grail.

> I have no idea why many "fiscal conservatives" have a problem with debt-fuelled capital investment by government whilst embracing it as normal and indeed good practice in the private sphere

I'm going to go out on a limb and say financial conservatives would agree there should be a reasonable risk of failure for businesses leveraging debt. That's the risk they take to reap the benefits of future growth. Governments should not be allowed to (can't?) fail in the same way businesses can, so shouldn't be able to take on the same risk.

Government checks can't bounce.

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Unless they give up sovereignty over their own currency of course. A mistake made by European countries - several of which have paid and are continuing to pay the price.

I absolutely agree that too much public debt is a bad thing, but not for the normally given reasons. It can lead to inflation, devaluation of the currency in relation to either goods or investment asset prices - indeed we see the latter at the moment in stock and property markets around the world, although that is driven by money creation through private lending. This is more worrying, as private checks can and do bounce, debts default, and we get another financial crisis.

Govt debt should be used for capital investment - roads, communications, health, education and security facilities - and if so used can be a true investment with an expectation of future returns. Debt that blows out on operational expenditure, transfer payments, public sector bureaucracy bloat, is not sustainable.

> I have no idea why many "fiscal conservatives" have a problem with debt-fuelled capital investment by government whilst embracing it as normal and indeed good practice in the private sphere.

Because microsoft doesn't show up at your door at 3am with guns drawn and steal all your stuff if you don't agree to finance their newest OS?

More seriously though, businesses carrying too much debt also get in trouble with the 'conservative' investor types.

Radix aims to be quick and cheap enough to be a viable option for this https://www.radix.global/ They can even support off the shelf POS terminals https://www.youtube.com/watch?v=pMw7hQ6x2f0

Disclaimer: I have just joined their team, because I think what they're doing is awesome

> That's a pity BitCoin has failed to do this. Hopefully Monero or something new will succeed once and set the people free...

I guess the first step on the path to success for a new currency would be to acknowledge and understand the relationship between credit and modern efficient money (the relationship here being equality). Fractional reserve banking was disruption of money much before SV started to use the term. Unfortunately it looks like the cryptocurrencyfolks seem quite stubborn in sticking with the monetary concepts of stone ages, so I am not holding my breath waiting any cryptocurrency to succeed as real world money any time soon.

I'm not sure cryptocurrencies can help legal cannabis sellers all that much. Unless they can conduct their whole business in cryptos, they still need to have a bank somewhere. And since these sellers are legit, laundering money via crypto to hide the source of their income from the banks isn't really an option.

I still don't understand how or why, but I am able to pay for marijuana from a local medical dispensary in CA with a credit card.

Anyone know what is up with that?

There are IIRC two processors who will run those transactions. Was just discussing this with a colleague in the payments sector yesterday and we were going to finish the conversation today to learn more about where those funds go and how they are transferred. Lots of "clubs" sell memberships where the product is complimentary, you pay for the access to the "lounge" and premises. The big problem with most weed transactions is they can't be run through any org that is federally insured, which is why banks won't touch dispensary money.

Do I have this right: your State says your medicine is legal to buy, the Federal government says it's not illegal, but whoever controls "federal insurance" prevents normal use of the banking system for companies that are in the supply chain?

Who decides on the rules for those using "federal insurance" and why do they override state law on what's legal to sell?

Why can banks refuse your cash? Why do they?

> Do I have this right: your State says your medicine is legal to buy, the Federal government says it's not illegal

No, the second half is wrong; the Feds say it is absolutely illegal, but also not a prosecution priority. Well, except the “not a prosecution priority” part just got a little less clear.

As far as I understand, your state says it’s legal but the federal government says it’s illegal. However, there’s a standing directive from the Justice department that they won’t prosecute individuals complying with state laws (when those state laws legalize marijuana).

So it’s still illegal at a federal level, but the department that would ostensibly enforce that simply let it be known that they would defer to state law and not prosecute when state law legalized it.

But since it was never actually legalized at the federal level, it’s little more than a gentleman’s agreement (which could be pointed to as a valid defense if someone was prosecuted federally). But since the directive came from the executive branch, it can also revoke/revise that directive as it wants, and begin enforcing those federal laws regardless of state level legalization. Congress still has the power to pass actual laws that decriminalize it federally, but they’ve conveniently been spared from that politically charged topic by the Justice Department directive. Now they’ll be forced to address it. And with hundreds of millions of dollars in state tax revenue at stake, there will likely be more pressure to not white wash over it than their has been previously.

> there’s a standing directive from the Justice department that they won’t prosecute individuals complying with state laws (when those state laws legalize marijuana).

Until today. https://www.reuters.com/article/us-usa-justice-marijuana/tru...

it can also revoke/revise that directive as it wants

Which Sessions just did.

Does that the DEA will start busting shops that are legal under state law?

The state could just arrest the federal agents for breaking state law, and throw them in with the drug dealers and stall the fed's efforts to spring them with maximal paperwork.

Let the 'system' sort them out and see how keen they are.

Federal law preempts state law.

Only in regards to things where the federal government has authority to begin with. There are very good reasons (the Enumerated Powers clause, the 9th and 10 amendments, etc.) to question if the federal government actually has all the authority it claims for itself.

That’s true, but it’s been squarely presented and decided in Reich v Gonzales, relying on Wickard v Filburn that Congress does have this power. And through application of stare decisis / precedent it will be difficult to undo that.

It might. That happened in legalizing states prior to the policy; Rohrabacher-Farr, as long as it keeps getting renewed, legally limits this for state-authorized medical marijuana, but the effect in states with broader legalization is unclear.

No, what Sessions specifically said is it will be up to the state attorneys. In most cases their goals are aligned with the citizens who voted these laws into place.

> No, what Sessions specifically said is it will be up to the state attorneys. In most cases their goals are aligned with the citizens who voted these laws into place.

No, he said that US Attorneys should follow preexisting prosecutorial principles rather than the restraint policy which, in his words, “undermined the rule of law”. [0]

US Attorneys are federal executive-branch political appointees, not state officials whose goals are aligned with the interests of the voters of the state.

[0] http://www.thecannabist.co/2018/01/04/sessions-marijuana-enf...

Someone will be able to explain this better than I can right now but the short and dirty version is that actual banks in the US operate with authority given by the federal government. This relationship grants them perks like being able to operate across states lines, etc., but also FDIC protection which insures the deposits they hold for customers. Since marijuana is illegal at the federal level, banks cannot have customers who are in essence violating federal law. Allowing dispensaries to be customers opens the bank up to a level of risk they are not willing to bear. My comment referencing being "federally insured" is in reference to FDIC, which is the easiest way to tell whether or not a bank is regulated at the federal level. Many credit unions are in fact not "banks" in the traditional sense as they are not federally regulated and do not offer FDIC insured deposits (although IIRC there is another form of deposit insurance that is not federally backed). So again, the short version is your payment path in the marijuana industry cannot touch any corp that is federally regulated.

Credit Unions have their deposits insured via the NCUA.

https://www.ncua.gov

> Federal government says it's not illegal

Pot is still illegal at the federal level. Though the Obama-era DOJ deprioritized enforcement. Jeff Sessions just rescinded this policy. So I'd expect to see some new cases dealing with pot end up in federal court.

> Though the Obama-era DOJ deprioritized enforcement.

And Congress has, for several years, prohibited federal funds from being used to interfere with state medical marijuana implementation.

This is still the case as of today - this protection has been extended to January, 18 when this last came up for vote. It'll likely get extended again.

So if they start targeting places, it'll be recreational pot stores and farms that sell to them, not medical dispensaries.

Yep. I expect this will happen quickly. Some people are going to wake up at the end of a gun and find out they are the lowest hanging fruit.

I think Eaze uses http://eazepayment.com/ A Cyprus based company that uses offshore methods. Anyone else have insight on this?

In CO they look like ATMs to the bank rather than a point of sale terminal.

Must have found a processor willing to take the risk. Or they lied about the business they're in to their processor. There's a company called eMerchantBroker who seems willing to provide licensed dispensaries with standard card processing services.

https://www.cardpaymentoptions.com/credit-card-processing/ma...

My experience with those dispensaries is that they don't last too long. The ones I've seen stay open for years are all cash. I'd be curious to know if yours is doing something special to be able to accept credit cards.

airfield supply has been around for a while and take cc. also eaze.

I believe some work with smaller local credit unions who only have in-state business. Not sure if these credit unions are in the clear or just minimally exposed to federal prosecution though?

Rohrabacher-Farr, as long as it is in effect, is pretty much a complete bar to federal prosecution for in-state actions associated with state-approved medical marijuana activities (both on its face and, because DoJ tried to narrow it in practice and got challenged, this is also fairly well tested in the courts.)

Of course, that's tied to federal spending bills and needs renewed with each new spending authorization, so without timely and full-year budgets it's kind of perpetually at risk of near-term expiration.

I know of a couple dispensaries/delivery services in LA that use payment apps (Square, PayPal, etc) and leave the line item descriptions blank.

Bold, but it seems to work for them.

Pot seems like a natural fit for cryptocurrency. There's several currencies which are designed specifically for this space (e.g. HempCoin - http://www.hempcoin.org/ - THC). As far as I can tell the weed cryptos seem to be mostly speculative in nature as retailers are dealing in cash as the article states.

Except that it isn't. At some point your coins have to be converted to USD. You can't pay your employees in cryptocurrency, you can't pay your electric bill in cryptocurrency, you can't pay your rent/mortgage in cryptocurrency. If you think just because you did a USD -> coin -> USD flip that no one will consider it laundering or ask where the proceeds came from, guess again.

> You can’t pay your electric bill in crypto currency.

I’m from Hanover, Germany and was surprised to see that since September 2016 my electric/gas/water company added a QR code to their bills to easily pay bills with Bitcoin [1] (They have super informative bills with easy to read charts as well). They even have service center support staff that will help you if you don’t know how to get/use bitcoin. There were (haven’t checked in a while) multiple listings for flats (we Germans tend to rent) that offered payment in bitcoin a year back and multiple little bars and cafes also offered payment with Bitcoin. I’m pretty sure I could live by doing >80% of all my outgoing payments in Bitcoin (if it weren’t for the high tx fees).

[1] - https://blog.energybrainpool.com/en/german-regional-utility-...

I paid my electric bill ($2400/mo) in BTC in 2014 at the first bubble for a while because I was runninga 13 terrahash mine from my spare bedroom. I used a lot of weird methods to do it. My friend did it once using this service where someone would pay your bill and the BTC would be held in escrow. The card used was fraudulent and now he has to pay his electric bill in cash for his home and business.

You definitely CAN pay your bill in BTC, it's just harder than most people want to mess with.

> using this service where someone would pay your bill and the BTC would be held in escrow. The card used was fraudulent

Jack's complete lack of surprise has reached a new low.

You may not be able to directly pay entities, but you can easily do so through a liquidity aggregator. If that aggregation vehicle is through a privacy-focused coin like Monero or Zcash, or anything onion routed (e.g. Lightning network), how exactly do you demonstrate laundering?

This really is no different than dealing in cash presently. Employees still need to report their income, even when paid in cash, so even in that event they'd still be subject to any laundering concerns of the federal government given the paper trail follows back to the dispensary entity. Same with any other entities they're paying in cash (unless they are dodging reporting requirements).

Crypto solves the problem (partially) of where to store your revenue instead of a bank. Its just a better way than the alternative of paying security outfits to guard your heaps of cash— its judgment-resistant and reasonably easy to liquidate.

The biggest problem with that use case right now is obviously price fluctuations. Not sure anyone is comfortable using a volatile asset class for that at present.

> Crypto solves the problem (partially) of where to store your revenue instead of a bank.

How exactly? You run a pot shop and end the day with $10,000 in USD. What happens next?

Go buy Monero from local Monero.

The GP is saying that after you have the cash in hand from your customers, how do you transfer it into a digital currency like btc or monero or anything else?

You need to physically have an armored transport take it to whoever is selling you the cryptocurrency.

Edit: I guess that's a potentially profitable but unfulfilled niche. Create a company that can take cash in big amounts and sell cryptocurrency. Not sure how feasible is it but that is the missing link as I see it.

> Create a company that can take cash in big amounts and sell cryptocurrency. Not sure how feasible is it but that is the missing link as I see it.

The problem is they would fall under the same money laundering rules that banks are and would probably not want to take dispensary cash. Even if they do take the cash, where would they deposit it?

> Edit: I guess that's a potentially profitable but unfulfilled niche. Create a company that can take cash in big amounts and sell cryptocurrency. Not sure how feasible is it but that is the missing link as I see it.

That just pushes the problem down the road to somebody else, though. At the end of the day somebody's going to have a huge pile of cash, and no bank will accept it without knowing where it came from.

You have a point.

I guess this really does boil down to a federal vs state legality then?

So if it's legal in a federal level then banks should be able to accept the cash right? or would they have a "right to refuse the business because we don't like it even if it's legal at the federal and the state level"?

> Create a company that can take cash in big amounts and sell cryptocurrency.

I believe this is commonly referred to as an exchange. I believe there are quite a few in existence already.

I meant physical cash in large quantities.

Oh right. I believe this is commonly referred to as organised crime.

Is it organised crime having piles of cash from otherwise legal activity?

Let's assume there is no federal vs state legality issues and instead it's just "legal". If selling X product generates large quantities of cash, is that organised crime?

I would think not, but then again I'm not a lawyer so I could be wrong. If I am wrong then yeah, the idea is definitely not sound.

If the activity is wholly legal then there isn't a problem looking for a solution: existing cash handling services will gladly do business with you.

Taking in large sums of cash and swapping it over for some cryptocurrency or another is bound to attract at least a few people who have need to launder cash. Thus, the service is likely to run afoul of Know Your Customer regulations etc etc.

As others have pointed out elsewhere in the comments, we ought, in my opinion, fully legalise and regulate the industry.

> Is it organised crime having piles of cash from otherwise legal activity?

Selling marijuana in the United States is not a legal activity. It's a federally prohibited activity that if you are really successful at it (simply by amount of money made) can be charged as a felony with a mandatory life sentence (in the no-parole federal system, where a life sentence actually means life.)

All this marijuana to crypto currency stuff is great in theory.

But at some point, you, the skinny geek with your bags of cash and bitcoins is gonna run into people who have already solved this problem and have been doing it for the past 40+ years. The drug cartels. Probably gonna be some conflict there.

Give the customers a 5% discount if they pay in Ethereum, Bitcoin Cash, Monero, ZCash, etc.

Then you'll end your day with about $9,950 in USD...

What legitimate liquidity aggregator is going to hold the counterparty risk for PotCoin/HempCoin and have banking relationships? Because once the Weed-coins are sold for BTC and given to a liquidity aggregator in jurisdictions where marijuana/hemp are illegal that becomes money laundering.

Cryptocurrencies that dodge regulations do not; their value is backed by the greater fool theory and the fact that this new retail wave aren't too familiar with AML/KYC/counterparty risk

To address your last point, a non-gubmint backed stablecoin would address that, but then again, perpetual motion devices would probably stop energy issues.

Now I kind of want to create a PotCoin/HempCoin marketed as a solution to marijuana businesses (which are rapidly growing as more states legalize so get it now while it's still cheap!) inability to use federal banks just to see how many people i could fool into buying it.

The sad thing is I bet I could make millions...

Literally none of that matters to a prosecutor. In fact, taking steps to obscure the source of funds is going to be considered a crime in and of itself.

You may not like it but KYC/AML regulations exist and are enforced.

> If that aggregation vehicle is through a privacy-focused coin like Monero or Zcash, or anything onion routed (e.g. Lightning network), how exactly do you demonstrate laundering?

You should be more concerned about how you demonstrate it's not laundering, because in more and more jurisdictions KYC (Known Your Customer) regulations in banking means you will in more and more circumstances get questions about where your money came from and potentially be asked to prove it.

This may or may not affect your jurisdiction now, but these will likely get more common as crypto spreads.

E.g. my ex bought a house recently, and part of the funds she paid the deposit with were transferred from her sister as part of her inheritance from her dad. Which created a whole circus with her lawyer, who was obligated to be certain they were not dealing with laundering, of digging up not just her statements, but dealing with requests for her sisters bank statements, and documentation of the source.

If one of those steps is effectively a tumbler, the answer may very well be "you can't prove the money is clean; we can't deal with you, and we have to report this"

No need to make any specific approach illegal even - just require that anyone you make large payments to are sufficiently satisfied the source is clean, which will be exceedingly hard for users of methods that obscure where it's from.

> Crypto solves the problem (partially) of where to store your revenue instead of a bank.

The question on everyone's lips is: in what way is storing money in a bank a problem.

Any way you slice it banks are a number of solutions. Problems not so much.

lol, crypto isn't magic. Security through obscurity is not a solution. We're trying to move away from that tor blackmarket world.

People need security through legality. This just needs to be... not illegal.

Crypto is not illegal. You just have to pay taxes on it, and exchanges might ask you to explain where the money came from.

I'm surprised nobody created a bank/exchange to take advantage of the situation.

Weed revenue is federally illegal. I think that's ridiculous, but buying crypto with that money in order to buy clean money is still considered money laundering under federal law.

That would only work if you can get the customers to pay you in the crypto coin. The retail side of the weed business is lots of small dollar transactions done in cash. Converting that to crypto requires a full scale cash-to-crypto operation that is effectively the definition of money laundering (or at least solving the same problem).

No, converting cash to crypto is NOT money laundering.

Money laundering is when you get dirty money and try to convert it into legal clean money.

I'm this case there's no dirty money, it's just banks are scared of the feds, so they refuse to take it.

They're scared of the feds because the money was the result of a violation of federal law. It's dirty money to anyone that has to deal with the feds.

Plus, would they want to wait 20+ hours for a transaction to process?

There isn't any reason why they would need to accept Bitcoin instead of a token with faster confirmation time.

Pot seems like a natural fit for the banking system that, say, microbreweries use. It's just that we have idiots like Jeff Sessions in the way.

It's hard to blame Jeff Session here... he's just enforcing the law as it is written. Congress needs to do its job.

I think its easy to blame him because he is choosing to enforce a policy that was previously not enforced.

Laws that aren't enforced should be repealed.

Selective enforcement is a recipe for tyranny.

Though I personally think that weed should be legal, I'm not going to fault Sessions here. The ball's in Congress's court.

Sessions was a Senator until recently, so, yeah, still on idiots like him.

I don't consume the stuff, by the way, but it's just been a huge win for Oregon. Millions in tax revenue, and the whole industry is now above board, cutting out any actual criminal types, freeing law enforcement resources for real crimes.

Then maybe you should be lobbying your idiot Senator to introduce a federal legalization bill, rather than complaining about laws that are on the books being enforced.

The problem with laws that "aren't enforced" is that they often do wind up being enforced. Selectively. Against anyone the government doesn't like for whatever reason.

We don't need a legalization bill. Congress has given DEA full authority to reschedule drugs, and this includes removing them from the schedule altogether. Thus, the federal status of marijuana is one executive order away by the DEA director. Or a person said director is reporting to - like, say, the Attorney General.

So, as it happens, Sessions could make this whole mess go away with a stroke of his pen. Or Trump could direct him to do so. Congress could then vote to reschedule it again, of course - but I doubt they'd dare, given the polls on the issue.

Interesting if true. I am dubious about this because I know that congress has taken action about specific drugs before (notably crack) and I would be surprised if they hadn't passed legislation requiring marijuana to be restricted. I don't know how to search for this information, though, or how I would be confident that it didn't exist without being a domain expert.

Edit: Follow-up, wikipedia has an excellent article [1] about the complexities here. Either congress or the executive could easily make medicinal marijuana legal by rescheduling, but to legalize for recreational use, they would have to amend an international treaty [2], which would require congress to act. Apparently congress has not explicitly scheduled marijuana (as it has other drugs), so the executive is free to act within the constraints of the Single Convention.

[1] https://en.wikipedia.org/wiki/Removal_of_cannabis_from_Sched...

[2] https://en.wikipedia.org/wiki/Single_Convention_on_Narcotic_...

> Congress has given DEA full authority to reschedule drugs, and this includes removing them from the schedule altogether.

Not if they are covered by a treaty commitment; in that case, the DEA can change the scheduling but must maintain a certain specified minimum restriction level.

Marijuana is a subject of treaty commitments, and therefore, while it could be moved from the spot on Schedule I where Congress put it when they passed the Controlled Substances Act to replace the Marijuana Tax Act, it cannot be removed from the set of schedules.

Of course, the President could abrogate the applicable treaty, but it's not a marijuana-specific treaty, but the core international narcotics control treaty that the US lobbied for and which is the underlying basis for pretty much all international cooperation on drug enforcement.

The US administration could also lobby for a global change to the treaty to take marijuana out, but the required consensus would be hard to secure even when the US had better international standing than it has today.

> Laws that aren't enforced should be repealed.

or ammended -

Enforcing all laws equally at all times is not possible. There will always be priorities and resource allocation.

Why cannabis prosecutions have now become a priority is not clear. The immediate impact and chilling effects are clear. What should state governments and businesses do while federal legislation is work-in-progress?

Mine support it: http://www.oregonlive.com/marijuana/index.ssf/2014/10/mariju...

Posibit is how a number of rec pot shops in WA currently accept credit cards. The gist of it is that you as an individual are buying currency from Posibit, then your currency is transfered to the account of the shop (all off-chain). The shop then sells their BTC (often the moment they receive it) back to Posibit.

Sure but doesn't this still necessitate having a bank to store the cash they sell the BTC for? Or do the pot shops store their cash in their Posabit account?

The storage of cash situation is is a weird one nobody really talks about. It's unclear to me how Posabit gets USD back to the retailer, but my understanding is the funds moving from Posabit to retailers happens as USD.

Due to the fact retailers have to move large sums of cash, and can't store it in a bank easily, they're pretty tight lipped about the situation (pot shops being robbed at the end of the night isn't unheard of).

Can't pay rent in cryptocurrency. No one is going to pay you directly in cryptocurrency so that's a problem. No cryptocurrency is stable enough to allow for ordinary small business levels of operating margins. It sounds pretty terrible actually.

What value does a cryptocurrency bring that cash does not?

I like how it’s a Credit Union taking the lead on this, while not charging profit-maximizing fees.

What was hard for pot entrepreneurs before appears to have taken on a whole different level of difficulty if the Feds are successful with their just-announced plan:

"Trump administration targets recreational pot, placing thousands of marijuana businesses in California at risk" (L.A. Times, 04-Jan-2018)[0]

-----

[0]http://www.latimes.com/politics/la-na-pol-pot-sessions-20180...

Popehat thinks the impact of Sessions' latest announcement is pretty minimal without other changes: https://www.popehat.com/2018/01/04/lawsplainer-attorney-gene...

In particular:

> In 2014, in the Rohrabacher-Farr amendment to an appropriations bill, Congress prohibited the Department of Justice from using federal money to "prevent" states from implementing laws making medical use of marijuana legal. Courts have found that this amendment may prohibit federal prosecutions for medical marijuana activities that are legal under state law.

Rohrabacher-Farr has to be passed anew with each spending authorization and the current one expires later this month. If the administration decided they really don't want it, they can go hard line on that, though there's political risk involved.

It explicitly also applies only to medical marijuana laws even as previously drafted; even if they don't go hardline against it they could either seek to have Congress revise it slightly to provide a clearer delineation of the medical boundary, or just go full-out against non-medical operations in recreational-use states and let the courts sort out the boundary; start a few RICO and/or Continuing Criminal Enterprise prosecutions with the associated broad forfeiture that can come with those (and the 20-year, or if your business is more successful, life) mandatory prison sentences available under the latter, and you'll drive lots of people that aren't yet being prosecuted out of “legal” pot and supporting businesses even before any legal challenges are resolved.

I respect Popehat a lot, but I think that while the minimization of the legal risk to individual users is accurate, it misses the real risk, which is to trade as a whole through selective targeting of major operations and supporting businesses. Individual users lose out because the “legal” industry goes away from legal risk, not because they are individually targeted for prosecution.

If the administration decided they really don't want it, they can go hard line on that, though there's political risk involved.

It's not like the administration has a whole lot of political capital to play with right now. Vetoing their own appropriations bill doesn't seem like a winning strategy, though obviously rational political calculus doesn't count for much in the White House these days.

> It's not like the administration has a whole lot of political capital to play with right now.

Sure, and if this administration showed any sign not of conserving political capital based on consistent coherent priorities rather than burning it on a whim, that'd play a bigger role in my assessment of the risk of them deciding to stand and fight on this.

Then again, if they had been doing that, they'd also probably have a lot more political capital pright now.

> Vetoing their own appropriations bill doesn't seem like a winning strategy

OTOH, threatening to over Rohrabacher-Farr might be—at least in the immediate term; it's quite possible that Congress isn't willing to shutdown the government over it but would believe the President might be.

Sure, but who's to say over the counter purchasing of marijuana isn't medical by definition?

It's a drug. It would certainly be a plausible argument that rescinding the need to have a doctor's prescription or some other formality does not change that fact.

Presumably allowing aspirin or bandages to be sold at gas stations or supermarkets doesn't stop them from being medical devices.

> Sure, but who's to say over the counter purchasing of marijuana isn't medical by definition?

In the first instance, the Department of Justice.

If people disagree, it becomes a dispute in the courts as people try to rollback the DoJ’s actions.

I’ve pointed out that this argument is available in another subthread, but you really don't want to be in the position of having to make it: https://news.ycombinator.com/item?id=16075569

Banking system is federalized though. Both currency and deposit insurance. They'll make it harder and harder for any weed dispensary or manufacturer to use banks, which is hilarious to imagine the crime around a liquor store having to use cash for every transaction.

But step back for a moment, and realize that they have probably 20 more policies just like this already in the hopper for a "rainy day", like yesterday, so they can completely control the media/narrative due to the outrage. Its literally the strategy that they state publicly. The problem of course is all the collateral damage, but at this point red state voters only care about sticking it to blue states. We're turning into a bi-cultural country to the point not seen since the civil war.

Yes.

Americans are the most divided right now. Polling these questions began in the 1990s.

IIRC General Mad Dog Mattis (not sure) when asked what's the biggest threat said it's the internal divisions and not terrorists, Russia, etc.

General Mad Dog Mattis should do something about it then, since he's in a position of power.

Really not a fan of the glib condescending style, and then:

> Practically speaking, it will be an impediment to personal-use prosecutions as well to the extent defendants claim they are in business to produce for medical use.

That defense is gonna last right up until the moment you find sales records to any not-strictly-medical distributor, which will be basically every one in legal recreational states. So yes, the door is completely open to federal prosecution of the vast majority of people in the business.

Is aspirin not a drug or medicine when sold at a gas station?

What about 'recreational'?

You can make an argument (though media typically characterizes it as “recreational”), that the states that have authorized pot withoit a physician recommendation have actually legalized it for OTC medical use like any of the wide range of drugs people are free to buy and use according to their own interpretation of their medical needs.

OTOH, if the DoJ decides to push the limits of its authority, that's an argument that will potentially have to be made after they’ve seized your assets and charged you everyone in your business—and potentially outside business partners who knew what your business is—with major felonies some of which have 20-year mandatory sentences, and maybe offered you a chance to plea down to a few years. So, even pushing the argument will be a big risk.

If the state laws were written explicitly referencing 'OTC medical use', I would agree.

However, the state laws of Oregon, for instance, specifically use the "recreational" terminology. It is not an invention of the media.

https://www.oregonlegislature.gov/bills_laws/ors/ors475B.htm...

> If the state laws were written explicitly referencing 'OTC medical use', I would agree.

There would make it a much easier argument, sure.

> However, the state laws of Oregon, for instance, specifically use the "recreational" terminology.

Other states, like California, with general legalization do not.

> It is not an invention of the media.

The use of it for all legalization regimes that aren't predicated on a physicians recommendation is, though.

Look up stats for how much Obama spent on raiding states with legalized pot. The idea that Trump suddenly has a war on pot is ridiculous nonsense. The idea that the Fed's hands were tied before now is ridiculous.

Federal drug policy has long been, and will for the foreseeable future continue to be, dangerous nonsense.

This is typical media over-reaction to all things Trump. Sessions merely ended Obama's policy, which was to have the local federal prosecutors put marijuana enforcement at the bottom of the priority list, while still keeping prosecutorial discretion. Now they have full discretion. It's really not much of a change. What is needed is for Congress to change the law. There is a bill by Cory Booker to remove marijuana from Schedule 1, essentially leaving it up to the states.

I assure you, there was a significant change between Stalin's interpretation of the criminal code of the Soviet Union, and Gorbachev's. The law was more or less the same, but executive enforcement was widely different.

The law, as it is practiced, is much more important then the law, as it is written.

This is a very bad example. USSR had "civil law" system, which, unlike "common law" in the US does not depend on the interpretation. "Civil law" is direct and is not up for interpretation by judges. So, naturally, criminal code under Gorbachev has been very different from Stalin's (as well as civil code and the constitution). For example, the article 58, counter-revolutionary activity, which has been used to send millions to GULAG under Stalin, has been removed in 1960s.

> USSR had "civil law" system, which, unlike "common law" in the US does not depend on the interpretation. "Civil law" is direct and is not up for interpretation by judges.

That's not a accurate at all; language of law always requires interpretation and application to the facts, that doesn't change in a civil law system. Moreover, the different role of the judiciary isn't germane to what GP referenced, which was different approach to executive enforcement practices and priorities.

Yes, but treason was still on the books, and Gorbachev's USSR was less inclined to kidnap and beat people until they confess to plotting against the Glorious Leader, because their neighbour denounced them for hanging a portrait of Stalin ten centimeters lower then the portrait of Lenin.

Even if the law is not under discretionary interpretation[1], prosecution, analysis of evidence, verdicts of guilt or innocence, policing methods, and everything else is. Counter-revolutionary activity was hardly the only thing people were purged for - espionage and treason were other incredibly popular charges. If Stalin's officials were to be believed, half the country earned its daily bread by selling the secrets of the motherland to nebulous foreign powers.[2]

Not to say that the USSR was a shining paragon of legalism in 1987, but the letter of the law was not what made it different from 1937. The USSR had all sorts of, uh, wonderful laws, most of which were enforced with incredible discretion.

[1] Although, given the incredibly broad and poorly defined nature of Article 58, its application was 100% based on discretionary interpretation. http://www.cyberussr.com/rus/uk58-e.html#58-1a

[2] Or at least, that's how Solzhenitsyn tells it.

I am not arguing this. Your example is bad by:

a) bringing a civil law system to argue a point about a common law. It's like arguing about Linux with BeOS examples.

b) saying that the law was more or less the same while it has changed rather dramatically. Saying the US law has not significantly changed between Coolidge and Reagan would be less false than this.

Mere hours later the state legislature of Vermont voted to legalize pot. Between the lack of enthusiasm for perpetuating prohibition and Sessions' general lack of political capital/support from above, it doesn't look like they care what he thinks. Chances are that any individual businesses he tries to attack will have the state attorneys-general filing amicus briefs in their favor.

My hope is that every lawsuit jeff files is dogpiled by every state AG that has legalized it.

Why exactly would a rightist government attack pot business? It's business and rightists are supposed to be pro-business and anti-regulation, are they not? Is this effort just actually backed by alcohol industry giants sponsored lobbyists or what?

votes.

Then who exactly are these people who vote this? Seriously curious.

And I would expect the Feds to target banks first, particularly the one showcased in the NYT like this:

A division of the credit union, Safe Harbor Private Banking, provides checking accounts expressly for the marijuana industry, in clear violation of federal law.

Similarly, Stripe will not do any business with marijuana related internet companies.

There is at least one marijuana delivery company in Oregon who claims that they can take credit/debit, I have not used the app but I assume if this claim is correct they've rolled their own infrastructure.

Eaze.com takes credit card payment through a processor based in Europe.

Do you know the name of this processor?

FYI, this is not related to Eaze, but my colleague just alerted me to MJPay[0] and Greenhouse[1]. These are not processors in the traditional way, I'm told MJPay is more of a credit union and Greenhouse is much more complicated. Note that the MJPay site has a bad TLS cert.

[0] https://mjpay.io/

[1] http://greenhousepaymentsolutions.com/

I had thought it was http://eazepayment.com/

appears to be a Cyprus based company

It's called "Bliss".

would you happen to have a url for that? searching "bliss payments", "bliss payment processing" etc doesn't seem to bring it up. if you don't feel comfortable putting it here in the thread my email is in my profile.

I don't. I just see the name on my credit card statement. Sorry!

i think a delivery service rolling their own would be highly unlikely, and it would be much more probable that they lied about the nature of their business somewhere along the line to their processor/bank/etc to get the ability to accept cards.

This is the big problem. Laws say yes, banks say no. This also applies to perfectly legal e.g. adult or bitcoin businesses.

There is a huge opportunity for new fintech banks to address this problems.

I'm curious about the timing of publishing this on the day that AG Sessions announces a return to previous DoJ practices in prosecuting violations of Federal marijuana law, specifically mentioning money laundering and money transmitting statutes. It can't be coincidence, can it? Am I missing something or does this paint a nice big bulls-eye for the feds on Safe Harbor Private Banking?

There's a brief note in the article about the rescinding of the Cole memo noting that it happened after the article was written.

Honestly it seems like this is exactly the kind of business that the Federal government would want involved in the pot business - one that's getting cash off the streets while aggressively making sure that all of it is accounted for both coming in and going out.

On the other hand, the alternative of a return to a high-cash high-risk business might not be something that Sessions et al would object to - after all, if you weren't involved in criminal activities you wouldn't have risked being robbed or assaulted and robbed. Kind of like so many other things, don't listen to what they say, look at what they do and the impacts of those actions.

Can I start a mini bank in these states and take their money then turn it into credit? It's not that straightforward but is it possible??

I read somewhere that there may be legislation in the works by Scott Wiener to start a state sponsored weed bank.

This following link isn't where i heard it but it references said state law. http://www.sacbee.com/opinion/california-forum/article176972...

We’ve averaged 2 banking charters a year issued nationwide for the last five years, and none of them were to 420 Money Laundering Services, LLC.

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