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Cannabis crypto credit cards

Cannabis crypto credit cards

Is there a more perfect section header for Money Puff? Today, we’re talking about a San Francisco dispensary’s recent announcement that they will be accepting credit cards. You may ask how they’re doing that, given most banks and credit card networks will not work with cannabis. The answer, of course, is crypto. From TechCrunch:

“You’re not actually purchasing cannabis with a credit card,” says Jeff Dillon, managing director of Marketing at Smoakland. “You’re purchasing crypto, and then we immediately use the crypto to purchase cannabis, before cashing the crypto back out. That way, your credit card company knows users are purchasing crypto. Crypto doesn’t give a shit what you do with it. For my purpose, and for the purpose of the customer, [the payment processor has] no idea what’s going on.”

Of course, cannabis is a higher-risk market, and Smoakland expects it needs customers to pay a bit more in processing costs, but the team believes the customers are willing to do that in order to go up in a blaze of convenient glory.

“Two to three percent is standard for e-commerce, if you open a Shopify account or something like that. We are probably around 5% with high risk. If we were to open a porn site, it could be even higher than that. We’re a little bit lower, because there’s still a physical transaction. Anything involving crypto is deemed high risk, and you’re going to be charged a higher rate for the risk,” Dillon explains.

The Smoakland team says it is at the bleeding edge here, and wants to keep its cards close to its chest regarding who the exact payment processor is.

The bleeding edge is one way to describe the scheme. The other, from the perspective of banks and regulators, is illegal. I’m not a lawyer, and this is not legal advice, but I’m basing that on recent history. Here’s Bloomberg from December on the crackdown of another workaround cannabis payments scheme, known as cashless ATM:

Cashless ATMs, also called “point of banking” systems, allowed cannabis buyers to use a bank card instead of cash. The method had evolved to get around the fact that credit-card companies and banks don’t want to be involved in marijuana transactions because the drug is federally illegal. 

But such technology made pot purchases look like ATM withdrawals coming from different addresses, such as a neighboring McDonald’s, as Bloomberg reported in April. At that time, such transactions looked likely to move about $7 billion past the usual money-laundering controls of the banking system this year -- or about a quarter of all US cannabis sales.

Now the system is faltering because some of the largest processors of ATM transactions, such as NCR Corp.’s Columbus Data Services, have turned off the ability of processors to use their service, according to three people familiar with the issue, who asked not to be named discussing private information. NCR declined to comment.

The banking system does not like it when you try to disguise your transactions! Though Smoakland won’t reveal their processor because this scheme likely isn’t on the up and up, they claim they’re not worried. According to the article, ‘they believe the SAFE banking act is putting its thumb on the proverbial scales in the favor of what it is doing.’

I don’t claim to know all of the intentions behind the SAFE banking act, but I don’t think allowing crypto credit card payments is top of the list. I haven’t personally ever tried to purchase crypto using a credit card (or any other form of payment) but even that doesn’t seem easy! Why? Because crypto is a risky asset!

Now try buying crypto to buy cannabis and then selling the crypto. Who is paying for the currency risk here? Crypto is extremely volatile, so there are no guarantees that the conversion price on either end of the transaction will be consistent. Is Smoakland charging extra for that, or are they eating the cost if prices move against them? Also, the service of converting currency is not free on its face. If you’re a U.S. customer and use a credit card abroad, you will often pay a fee on top of the transaction costs. Who’s paying for that?

I’m going to venture that this move is mostly a buzzy promotion for Smoakland. And why not? Cannabis is federally illegal, flying in the face of at least some extant regulations. Might as well throw in a little bank fraud while you’re at it. The company says the service is in beta and they hope for a full rollout on 4/20. If anyone does in fact purchase cannabis with their crypto credit card scheme, please reach out.

Photo by Kanchanara on Unsplash