Cryptocurrency May Be The Unique Solution For Cannabis Tax Payments

This is the time of year when the tax deadlines for numerous countries and states all over the word begin to approach quickly. Since this is happening in such a wide variety of places, it is natural for people to start considering taxes. The potential impact of cryptocurrency on the collection and calculation of taxes must also be considered. Cryptocurrency investments in some areas became taxable going back as far as January of 2018. The impact of taxing cryptocurrency may specifically impact the cannabis market. Approximately ten states in the United States have made recreational marijuana legal. This number increases to about 33 for medical marijuana.

In some of the numerous states that have legalized cannabis, a lot of financial institutions will not perform financial transactions involving cannabis businesses because cannabis is still considered a drug. This attitude has caused a lot of issues for businesses dealing with cannabis because they need to pay their taxes. A good example is California. The businesses in this state have been forced to used armored vehicles for the transfer of cash and cannabis to the state councils. Their transactions have been refused by all of the banks. Although the problem seems insurmountable, the solution may be cryptocurrency.

The Cryptocurrency Bill

One of the California State Assembly members is Phil Ting. He is pushing a bill forward to enable the cannabis industry in the state to remit taxes for the city and county governments through the use of cryptocurrency. This would ensure the tax payment process was secure, stress free and more accountable due to the refusal of the banking institutions to help. Phil Ting spoke of the amount of cash at the stores and warehouses being extremely difficult to keep secure. He believes as dangerous as it is to transfer the product, it is twice as dangerous to transfer all the cash.

Phil Ting said a little cannabis store is no different than a little storefront. Both of these stores are located in residential neighborhoods with people living in the area and always around. If anything potentially dangerous or violent occurred, the neighborhoods could suffer the repercussions. Despite the fact the bill has not currently been approved, there is speculation that tax bills could be paid using cryptocurrency as soon as next year.

The Opinions Regarding the Cryptocurrency Bill

Assemblyman Kevin McCarthy is a Democrat from Sacramento. He is also one of the authors of the bill potentially enabling cryptocurrency such as bitcoin to be used to make tax payments. He believes the need for this proposal is highly significant. He stated the cannabis industry has been restricted from using traditional banking methods. This will not change as long as cannabis is classified at the federal level as a Schedule I narcotic. He spoke of the need for something different that the cash system currently in place for the cannabis operators to pay both their employees and their taxes. He wants to see a federal solution regarding banking for the cannabis industry. He believes cryptocurrency could be one of these solutions.

Assemblyman Phil Ting is the lead author for the bill. He sent a short, prepared statement to the Times-Standards stating the issue was a matter of safety. He said there are a lot of things that can go wrong when large amounts of cash are transported. This presents a substantial risk for cannabis businesses when they pay their taxes. He believes cryptocurrency is a cheaper and safer solution for the cannabis industry. He feels if the cost of paying taxes were lowered, this would help combat the activity on the black market while providing the encouragement necessary for more businesses to become licensed.

Kevin McCarthy stresses this was an option and not mandatory. He believes people will agree this option is a safer alternative and more viable than having to transport 100K in cash. The Bayshore Mall in Eureka has a cryptocurrency ATM. The issue is it remains unknown how many of the local businesses are accepting cryptocurrency or how often Humboldt County uses the currency. Austin Allison is the Councilman for Eureka City. He has studied the systems used for cryptocurrency. This left him intrigued by the concept. He believes the safety in the cannabis industry prevalent in Humboldt County could be boosted by cryptocurrency. He also said cryptocurrency has not yet become widely accepted.

Austin Allison admits cryptocurrency still remains fairly unknown. He believes if the payment solution focused on the technology as opposed to the price fluctuations, the concept would be brilliant. He said there are a lot of computer scientists currently researching the specifics of bitcoin and the potential uses. He added three to five days are required for a bank transfer. Cryptocurrency transactions would speed up this process because payments can be settled in a matter of seconds. He believes the idea is pretty cool. He also feels the issue may be the price fluctuations.

Austin Allison said cryptocurrency is similar to commodities like gold because value fluctuations can happen in hours or days. By nature, cryptocurrency is volatile. He additionally stated the performance of cryptocurrency today will be different tomorrow. He stated when payment transfers are made using bitcoin, the cryptocurrency can be purchased at current value then converted back to United States dollars during the same day. He believes this may be the way to get around the fluctuation issues.

Helping the Cryptocurrency Adoption

If the bill passes, this could be a substantial benefit to the industry of cryptocurrency. The chances are good substantial investments would have to be made in cryptocurrency by the cannabis industry in order to pay their taxes. This could lead to a greater adoption of cryptocurrency for a lot of companies in different sectors. Many of the proponents of cryptocurrency believe it may be better than the current banking system. The new bill introduced by California would enable cannabis businesses to pay county and city taxes with cryptocurrency. The idea is to make the process of paying taxes safer for the local cannabis businesses and storefronts.

If the potential bill is passed into law, the counties and cities would be able to choose if they wanted to accept cryptocurrencies such as bitcoin from marijuana businesses. According to a report from CBS Sacramento, this could become a reality by 2020. A lot of states including California have already legalized marijuana. Marijuana is also legal in Washington, Oregon, Nevada, Colorado, Alaska, Massachusetts and Vermont. Despite this, the banks are still refusing to have anything to do with the local cannabis businesses. The FDIC or the Federal Deposit Insurance Corporation insures the majority of the banks. This prevents the banks from providing any activities or services that are not legal under federal law.

The Cannabis Industry

The majority of marijuana shops are not legally entitled to perform basic financial operations such as writing checks. This means they have to handle large amounts of cash. This also makes them a very easy target for thieves. When the owner of a cannabis business goes to the tax office, they are carrying a suitcase filled with cash. The bill would eliminate the need to carry cash by making the process of paying taxes easier. The cannabis companies would be able to use cryptocurrency to pay their cultivation and excise taxes. The ability to use third-party digital processors may go into effect by 2020. This would remove the dangers and increase safety for the local neighborhoods as well.

It is no longer considered unorthodox to use cryptocurrency to pay taxes. The state of Ohio made this legal in November of 2018. Payments made using bitcoin were accepted by the local tax offices using BitPay, a third-party payment processor. There is a twist to these payments. If the company uses bitcoin to pay their taxes, United States dollars are received by the state. The cryptocurrency is converted by BitPay to fiat and transferred directly to the state of Ohio. According to media reports, only two businesses have used the option to use bitcoin to pay their taxes as of February 19th of 2019.

The reports regarding the new opportunity to use cryptocurrency to pay taxes for cannabis businesses is far below expectations. The belief is cryptocurrency should be a popular method for paying fines, fees and taxes. This may become a reality in the future. There are a lot of similarities between the marijuana and cryptocurrency industries. They are both in the earliest development stages, face regulatory and legal issues and are frequently misrepresented by the press.

The Cannabis Industry and the Blockchain

The gap between the cannabis industries and the blockchain must be bridged. The ability of the blockchain to record and track the cannabis process from seed to sale could potentially legitimize the cannabis industry to the regulators. Last year was a representation of the twelve best months for any asset class throughout history on record. The combined market cap when the year began was $17.7 billion. By the end of the year, the valuations for cryptocurrency were almost $600 million. This was a push of over 3,300 percent. The ballooning market cap was increased further by the new coins available on the market. The majority of the gain was from the increase in organic prices for ethereum, bitcoin, litecoin and ripple.

Government oversight and the supply chains could be revolutionized by the blockchain. Blockchain is a decentralized, distributed and digital ledger responsible for recording every transaction without the necessity of a financial intermediary. This could potentially change the cannabis industry and revolutionize the industry of financial services. If the banks were not filling the role of a third party for the transactions, the expectations are the fees would significantly drop. The transaction validation of the blockchain is available 24 hours every day and seven days each week. This means payment settlements would be nearly instantaneous. Transactions would no longer require a day to post. The non-currency applications would be of the greatest benefit to the marijuana industry.

Emerald Health Therapeutics is a Canadian grower. They have the capability of supporting a maximum of 5.8 million square feet. They have recently announced they are finalizing a joint venture to team with DMG Blockchain Solutions. The company will be called CannaChain Technologies. The focus of the new company will be e-commerce and supply chain solutions for the marijuana industry.