How Blockchain and Cryptoasset Banking Developments Could Enhance the Cannabis Marketplace

by Dr. Sean Stein Smith, CPA, leader of the NJCPA Emerging Technologies Interest Group, and Melissa Dardani, CPA, leader of the NJCPA Cannabis Interest Group | February 25, 2021

This is the second in a three-part series on how the cannabis industry can potentially benefit from a blockchain and cryptoasset payment system.  

In part one of this series, we discussed in detail the challenges associated with processing customer payments for cannabis businesses. In this second post, we delve into the weaknesses and risks of existing payment options and how blockchain and cryptocurrency can assist.

Banking and Financing Challenges

Even though Governor Murphy signed the adult-use cannabis reform bill into law on Feb. 22, which is welcome news for New Jersey, the federal illegality of cannabis still poses problems in sourcing banking and financing solutions. Absent the benefit of business banking, cannabis operations take on immense risk handling and safeguarding proceeds in a cash-based payment system. Yet many financial institutions are not willing to accept the risk of servicing these clients, and those that are willing charge fees commensurate with the additional risk and compliance burden. 

Financing has presented similar challenges for cannabis companies in weighing the pros and cons of their options. Traditional business loans are generally unavailable due to banks’ concern with Federal Deposit Insurance Corporation (FDIC) insurability. Similarly, there are concerns that taking an interest in collateral for loans issued to cannabis businesses could be subject to forfeiture due to the federal illegality. There are providers that have emerged willing to service small business loans for cannabis companies, however these tend to be short-term financing options with higher-than-market interest rates.

Tracking and Reporting Challenges

Cannabis businesses must also deal with complexities related to business-to-business (B2B) transactions.

  • Supply chain concerns. A state’s regulations largely dictate what the supply chain will look like. Points in the chain include cultivation, extraction of active compounds from the plants, manufacturing other cannabis products, testing the product for adherence to various regulations, B2B and business-to-customer (B2C) transportation and finally, wholesale and retail sales. Operators’ roles in the space largely depend upon the type of licenses offered by their state and the type of license(s) they obtained. Licensees that own all levels of the supply chain are known as “vertically integrated” businesses.  
  • Tracking and reporting. For vertically integrated businesses, software can help create a “seed-to-sale” experience. Tracking and reporting requirements will vary by state. There are services on the market that are equipped to handle reporting, tracking and transacting through various points in the supply chain. However, businesses that are not vertically integrated may face challenges related to incompatible software. Consequently, they may incur more data input and processing time and risk errors in the process when transacting B2B.  
  • Payment terms and trade credit. Under traditional circumstances, the standard use of payment terms and trade credit aids in administrative functions and allows businesses to better manage their cash flow. These practices are generally not available to cannabis operations. While a few commercial solutions exist, we may see more service providers emerge to service the industry by providing outsourced B2B management.  

How Blockchain and Cryptocurrency Can Assist

Bitcoin is still largely at the center of attention and discussion when it comes to cryptocurrencies, but the sector has matured immensely in recent years. In order to understand crypto’s potential as a solution for cannabis companies, we should first discuss the categoric makeup of the industry:

  • Decentralized cryptocurrencies, including Bitcoin, are not issued or governed by any single entity or small group of organizations. They are commonly associated with price volatility and speculation, as well as significant tax, accounting and reporting uncertainty. 
  • Stablecoins were developed in response to the aforementioned price volatility commonly associated with Bitcoin. Stablecoins are cryptocurrencies, but with two major differences: Stablecoins are issued, governed and managed by either a single entity or small group of organizations; and they are connected, tethered or pegged to an underlying asset, with a large percentage of these stablecoins being connected to the U.S. dollar. Lower price volatility, which will enable more products and services to be offered, illustrates the business case for stablecoin-based products. Yet with complexity in implementation and uncertainty surrounding the role of various blockchain-based technologies in the future business landscape, it might be a while before we see crypto-based payment systems in the majority of organizations.

Accounting for cryptocurrencies continues to be an ongoing issue for even the largest and most sophisticated organizations. Stablecoins, in theory, are to be used as a currency alternative, but under current U.S. regulation are still treated as property. In other words, whenever a stablecoin changes ownership, there is a taxable event. This complicates the accounting, recordkeeping and tax compliance processes, but also creates a bevy of opportunities for forward-thinking practitioners and organizations.

Looking out at the regulatory landscape, there are distinct updates that might resolve some of these hurdles to wider adoption:

  • The Biden administration’s selection of Gary Gensler to head up the Securities and Exchange Commission (SEC) should be viewed as a positive step forward for blockchain and crypto regulation. This is not to say amenable legislation is guaranteed, but it is always preferable to have regulations proposed and enacted by individuals who are knowledgeable about the subject matter. 
  • The Office of the Comptroller of the Currency (OCC) issued two recent updates that should be of interest to both practitioners and cannabis entrepreneurs. The September 2020 update clarified that federally chartered banking institutions could hold on deposit, reserve dollars for privately issued stablecoins. This enables stablecoin issuers to fully access the services and support of the commercial banking system and clarifies what specific products and services those same banking institutions can offer stablecoin issuers. The January 2021 update is potentially even more significant. It says that, going forward, federally chartered banking institutions under the jurisdiction of the OCC will be able to join permissionless blockchains (referred to as independent node verification networks) and validate transactions.

These updates are important since it means the banks will have full transparency and accountability with regard to stablecoin transactions on their books. In addition, those same institutions will also be able to buy, sell and process transactions that are taking place in the form of stablecoins backed by the U.S. dollar. Translating these updates into non-technical language means that federally chartered U.S. banking institutions can join blockchains and process transactions that are taking place via dollar-backed stablecoins. 


Melissa A. Dardani

Melissa A. Dardani

Melissa A. Dardani, CPA, CFE, MAcc, is the founder of MD Advisory Services. She is a member of the NJCPA Emerging Technologies Interest Group and several other interest groups. She can be reached at

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Sean D. Stein Smith

Sean D. Stein Smith

Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, is a professor at the City University of New York – Lehman College. He is a member of the NJCPA Board of Trustees, participates on several interest groups.

More content by Sean D. Stein Smith:

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