Irony Alert: Major Bitcoin Processor Rejects Pot Shop As Too Legally Dubious

Posted: Feb 10 2014, 9:03am CST | by , Updated: Feb 10 2014, 9:17am CST, in News | Technology News


Irony Alert: Major Bitcoin Processor Rejects Pot Shop As Too Legally Dubious
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Companies dealing in Bitcoin and marijuana have something in common: rejection from banks. Bit-entrepreneurs scare banks due to the intense regulation around money transmitting and the perfume of illegality that hovers around the virtual currency. Pot shops can’t get green lit for bank accounts because of the disagreement between some states and the federal government as to marijuana’s legality. When the New York Times chronicled pot shop owners forced to carry hundreds of thousands of dollars in legal marijuana profits – obviously terrifying from a security perspective — it occurred to me that Bitcoin could be the answer to pot’s problems. Unable to take credit cards without a bank account and wary of accumulating cash, they could instead accept the secure cryptocurrency. Bitheads and potheads, unite…. But it turns out it’s not such a mellow union. A pot shop’s plans to accept the digital coin are going up in smoke as its Bitcoin payment processor isn’t comfortable with the business it’s in.

On February 1, Seth Green, 32, founder of medical marijuana provider Pacific Northwest Medical, began accepting Bitcoin in one of his three pot shops, Kouchlock Productions in Spokane, Washington, where pot is legal. While people in the U.S. – including Forbes – have been able to score pot in exchange for Bitcoin in the past, this was the first time they could do so without risking a rap sheet.

“Bitcoin customers didn’t coming running from the hills, but we’ve had a few people come in,” said Green. It may not have brought a rush of Bitcoin spenders — he’s received less than one Bitcoin so far — but it did attract press.

Green’s business is lucky enough to have banking but he can’t process credit cards. He thought Bitcoin was worth exploring, in part because of the publicity it would garner. He set up an account with San Francisco-based Coinbase and bought a Bitcoin in order to test out the payment processing at his shops.

“I don’t see it as place to house our money because of the volatility,” said Green, noting the recent sharp drop in its value. “If it were a secure place to keep our money and the value was consistent, I would hold onto Bitcoin, but that’s not the case.” Instead he planned to use Coinbase to convert Bitcoin into USD, but when Coinbase realized who one of its newest merchants was, it decided to ‘just say no to drugs.’

“We can’t service them as a customer because it’s still technically illegal federally,” said a Coinbase spokesperson by email, indicating the company was was in the process of informing Green.

Bitcoin ‘banks’ like Coinbase are as wary of running afoul of federal law as regular fiat banks, and maybe more so given the precarious regulatory environment for the cryptocoin. Green after all does have an account with a normal bank; he had to in order to use Coinbase in the first place, as it requires users to link their accounts with a financial institution in order to buy and sell Bitcoin.

A rejection from Coinbase doesn’t mean that Green has to stop taking Bitcoin, but it does mean it’s going to be harder for him to swap it out for legal tender. He would have to create his own Bitcoin wallet, and then either find ways to use his Bitcoin — such as paying suppliers or employees with it — or find a processor who wouldn’t be afraid of the contact high.

“That is nothing new,” said Green by email after I reached out to him about Coinbase shutting them down. “We open a new account tomorrow and the game goes on.”

Green’s first trip into Bitcoin may have been a bad one, but it might spark the interest of others in the business. “There are thousands of marijuana operators dealing with legal marijuana money and they have nowhere to put it,” says Green. “Bitcoin is not something people in our circles fully understand yet. It’s happening but it’s slow.”

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Source: Forbes

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