Are bitcoins a transparent enough currency for Washington’s marijuana sales?
It depends on who you ask.
This would cover transactions between growers and processors, between processors and retailers, between retailers and customers, and in the journey from retailers to savings institutions. The bill was debated at length on Wednesday at a hearing in Olympia, which you can watch in full on TVW (starting in minute 16).
One plank of Washington’s four-year-old recreational marijuana system revolves around financial transparency — tracking the flow of cash so it cannot be laundered or involved with behind-the-scenes criminal interests. Marijuana is on its way to becoming a $1 billion industry in Washington.
Rivers — one of the Legislature’s leaders on marijuana regulation — said she’s heard concerns that bitcoin could allow unknown parties to enter into marijuana financial transactions. “There’s no tracking of cryptocurrency,” said Rivers, whose bill prohibits marijuana producers, processors or retail outlets from “paying with or accepting virtual currency for the purchase or sale of marijuana or marijuana products.”
There is an informal understanding between the federal government — which outlaws marijuana nationwide — and the states that have legalized it for the states to ensure their systems are not criminally abused. As long as the feds are satisfied the states have a good regulatory grip, they have agreed not to pursue pot crimes in those states. An open question is whether the Trump administration will follow that arrangement.
Another wrinkle is that federal law prevents banks from knowingly handling marijuana — meaning the industry is a strictly cash business using complicated ways to eventually get pot money into savings institutions. Using credit cards and checks in marijuana transactions is against federal banking laws.
Consequently, an alternative would be using virtual currency.
There are roughly 1,000 types of virtual currency in the world with bitcoins making up possibly 80 percent of the volume, said Joe Cutler, an attorney at the Perkins Coie, who spoke at Wednesday’s hearing in front of the Washington Senate Commerce, Labor & Telecommunications Committee. Virtual currency is not backed by the U.S. government.
At the hearing, PayQwick CEO Kenneth Berke — who dubbed his company the “PayPal of pot” for helping marijuana businesses move money into savings institutions — backed Rivers’ bill.
“Bitcoins — there’s no traceability to it,” said Berke.
Sen. Karen Keiser, D- Kent, said “it boggles my mind” that marijuana business cannot deposit money into banks, but PayQwick can legally route the cash to the federal reserve system.
Meanwhile, Cutler and his clients Ryan Hamlin and Jon Baugher — co-founders of Seattle-based POSaBIT — testified against the bill. POSaBIT is looking to serve as a financial manager for the bitcoin economy.
“The idea that it is untraceable is simply false,” said Cutler. “Cash is dangerous. It’s dangerous to hold. It’s dangerous to move.”
“We have more transparency in our system than any cash transaction,” said Hamlin, adding that POSaBit require driver’s license and credit card information from the people who use its services.
Coindesk reports that marijuana dispensaries in Washington state were early to adopt bitcoin in financial transactions.