As the U.S. government tries to get hold of cannabis and cryptocurrency, this may be the perfect opportunity to officially join these two game-changing industries.
Since the creation of the first tax law, collectors and taxpayers have engaged in a perpetual game of cat and mouse. And no matter how you count the cheese, the IRS always wants their share.
Cannabis and cryptocurrency have one obvious thing in common: they operate in the gray, at least from a federal perspective. Yet despite their gray legal status, both industries have managed to build an impressive market. According to the data, the cryptocurrency market topped $ 2 trillion in April 2021, and the MJBizFactbook suggests that the economic impact of cannabis sales could reach 160 billion dollars by 2025.
Without federal laws to govern industries, billions of dollars in taxes go unchecked. However, as both industries gain a foothold and lose the stigma, there may never be a better time to bring the two together.
The story of two industries
The US Treasury Department recently published a report regarding reporting regulations for cryptocurrency in an attempt to discourage businesses from concealing transactions. Specifically, the report pointed out that cryptocurrency “poses a significant problem by greatly facilitating illegal activity, including tax evasion.”
Likewise, several attempts to legalize, regulate and tax cannabis have been explored in recent years, with little movement from federal lawmakers. This legal vacuum has left legal cannabis producers at a standstill, restricting most traditional financial transactions and overwhelming the industry with a glut of money.
So, on the one hand, we have a highly regulated industry, cannabis, which must follow a strict operational compliance regime as well as support rigorous oversight of financial service providers’ compliance – which requires traceability from seed to seed. sales and financial transaction information. down to the smallest detail. On the other hand, we have a rich supply of digital crypto assets that not only lack regulation, but also ideal opportunities to use them properly.
In other words, what better industry to support the cryptocurrency wave than cannabis? By leveraging the diligence, monitoring, and reporting already required for cannabis, the cryptocurrency can leverage existing infrastructure. At the same time, cannabis finds a solution to the cash flow problem by accessing the digital banking structure and a large pool of digital assets.
Current financial regulations already require that cash transactions over $ 10,000 be subject to IRS reporting requirements. Likewise, the IRS plans to invoke a similar compliance filing for crypto activity over $ 10,000.
Additionally, the IRS is trying to deter businesses from alternative banking by forcing payment service providers to file 1,099 reports, but this has been inevitable for cannabis companies due to banking restrictions. This conundrum may be the perfect use case for cryptocurrency.
Beyond secure banking
Safe banking for the cannabis industry will advance whether or not cryptocurrency is involved. Crypto is not a substitute for secure banking; rather, it should be seen as a tool to open up financial possibilities for cannabis producers and retailers.
For cannabis companies, crypto offers the possibility of locking down access to capital – something hard to find through traditional financial institutions. Additionally, as consumer behavior changes, many want to be able to use their crypto assets for tangible purchases. Having the ability to accept cryptocurrency opens up new customer channels and huge sales potential.
For crypto, the partnership with the cannabis industry also provides the opportunity to meet IRS requirements through global reporting. Using the blockchain or an immutable ledger, all data and transaction activities that occur in a business are locked down, so that what has been done in the past cannot be undone, and all activities can be easily audited.
Create an environment of trust
No one likes over-regulation, but without the right rules and the right oversight, no one is protected. Ultimately, building a business is about reputation and reputational risk mitigation, and that starts with compliance and transparency.
Managing risk and avoiding reputational errors are essential for the long-term success of a business. Sure, any business can produce a great product, but people rarely want to do business with a business that has a bad reputation for its sketchy or bad business practices.
Dropping crypto into the highly regulated cannabis environment isn’t just the best case for bringing crypto into the mainstream; this decision would also ensure that crypto assets are used in a legitimate and controlled regime, thus avoiding illegal activity.
Crypto exists; there’s no denying a $ 2.4 trillion industry. Now is the time to welcome it into our ecosystem and adopt its use appropriately.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Mark Lozzi, CEO and Founder of Confia, is a seasoned entrepreneur and investor with a deep understanding and experience in Finance, PropTech and RegTech. Prior to founding Confia, Lozzi held founding and executive positions at various investment banks, venture capitalists, and early state-owned technology companies. As a true disruptor to the cannabis industry today, Lozzi has led Confia’s strategy since its inception in 2018 to pioneer change for cannabis businesses and create an efficient and liberated ecosystem. He can be contacted at [email protected]
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