Cash is king in the cannabis world, and no one likes it that way. Because marijuana remains illegal at the federal level, only a handful of banks will do business with those in the industry in states where cannabis is legal. The few banks that do charge huge fees to cover the cost of complying with the federally required seven-part, ongoing due diligence process they must perform on cannabis customers.

Keon Houston, owner of Sacramento-based cannabis distributor Eminent Extracts, says 90  percent of cannabis businesses he deals with work in cash. He buys from farmers and distributors with paper bills and gets paid by retailers the same way. “It’s terrifying to have to sit on large sums of cash like that,” he says.

Where there’s need there’s opportunity, and a group of startups claims to have an answer for the industry’s banking problem. Nearly all rely on cryptocurrencies — digital money that emerged in 2009 with the launch of Bitcoin — to let customers buy cannabis cashlessly and allow canna-businesses to pay each other without an armored truck. But it’s not clear many in the industry are taking up their offers.

Houston’s fears of becoming a crime statistic are well supported. In August, the California State Treasurer’s Office commissioned a feasibility study of setting up a state-backed bank for the cannabis industry. In the December report, the authors noted that large amounts of cash make legal cannabis businesses and their customers targets of violent crime. The banking problem even puts the state’s own employees at risk when those companies bring in piles of cash to pay taxes and fees, they wrote.

 A legal canna-bank is nowhere in sight. The Treasurer’s Office study came to a gloomy conclusion about a state-backed bank: it would cost about $35 million to start and then likely wouldn’t be approved by federal regulators. Without changes at the federal level, no state-backed solution is feasible, the authors concluded.

A group of federal legislators is proposing rules to create a viable canna-banking infrastructure, but they’re not likely to succeed in the short term. On March 7, a bill was introduced in the U.S. House of Representatives that would create protections for banks that work with legitimate cannabis-related businesses. But of the bill’s 138 cosponsors, only 12 are Republican, so if it makes it out of the House its fate in the Republican-controlled Senate looks less than promising.

Equally bad for the industry, cannabis customers can’t use credit cards — the major card companies don’t allow marijuana merchants to accept them, cards, according to one report. Visa’s rules forbid “any Transaction that is illegal or that the Merchant should have known was illegal” and Mastercard’s guidelines notes that customers “may not directly or indirectly engage in or facilitate any action that is illegal.” (Neither company responded to requests for comment.)

With no federal overhaul around the corner, a group of startups has devised a range of payment solutions, nearly all relying on cryptocurrencies. If a pot business can get paid in digital crypto and have that converted to a deposit of dollars in a bank account, it avoids the piles of cash that can lead to so many problems.

Washington State-based POSaBIT, begun in 2017, puts payment kiosks into participating stores. Customers swipe their debit card at a kiosk, choose an amount, and the machine prints out a receipt with a QR code that represents that dollar value converted into a cryptocurrency called Litecoin. The customer uses that receipt to buy their product, much the way you’d use a gift card in a regular store, says CEO and cofounder Ryan Hamlin. When the dispensary scans the code, that amount of Litecoin is deposited into the dispensary’s digital wallet, which gets converted back to dollars and deposited in the dispensary’s bank account. Merchants pay a setup fee and a per-transaction fee and $99 per month per location. Hamlin says more than 100 cannabis merchants are using POSaBIT; all of their in-state clients are in Southern California.

Another option is Alt Thirty Six, based in Arizona and launched in November. It operates much like payment apps such as Venmo: The customer registers on the Alt Thirty Six platform, links their bank account, and fills their Alt Thirty Six wallet with a crypto called Dashcoin. When they buy something from a participating dispensary, the merchant is paid in Dashcoin, which gets instantly converted to dollars deposited in the merchant’s bank account. Merchants pay a fee that runs 3-5 percent, says cofounder and CEO Ken Ramirez. He says so far the company is working with about 100 cannabis companies — merchants, vendors and suppliers.

Other companies have developed cryptocurrencies specifically for cannabis, like PotCoin and  ParagonCoin. By one count, there are 17 cannabis-specific digital money types, all competing to become the dominant crypto that customers use to pay vendors for their weed.

There is at least one non-crypto option: PayQwick, based in Calabasas and begun in 2014. Customers download an app or are issued a card, link it to a bank account, load the app or card with money from their account, and use it to pay a participating dispensary that accepts PayQwick. Cannabis vendors are charged a percentage on each purchase; cofounder and president Kenneth Berke won’t disclose the actual number but says it’s “less than credit card fees.” He says PayQwick’s advantage is not relying on a crypto intermediary for payments because all transactions are in dollars. “You want to get the attention of the Department of Justice? Start using Bitcoin,” Berke says.

Despite all the alternative payment options, their market inroads seem limited. None of the platforms contacted for this story had an area dispensary willing to speak about their experience with their products. Berke says PayQwick has no customers in Sacramento but that “quite a few” have recently signed up and PayQwick is doing background checks. An Alt Thirty Six spokesperson says the company recently signed a Sacramento partner that will be opening locations but hasn’t made an announcement yet.

Houston, of Eminent Extracts, is unimpressed. “In this industry, nobody is to be trusted right now,” he says. “There aren’t enough historicals on those startups.” And he says given the high taxes and fees levied by the state on each sale, adding another fee to a payment vendor cuts  into already thin profits.

Cannabis customers aren’t flocking to Bitcoin or its offshoots either. CannaBeast, a Sacramento-based delivery company, advertises as accepting Bitcoin. But a person named Long who answered the phone (and wasn’t willing to provide his last name) says no customers have wanted to pay with Bitcoin. Circulation of the other cannabis-specific cryptocurrencies appears small. Market data for PotCoin, considered a leader among cannabis cryptos, show that only about $8,000 was exchanged in a recent 24-hour period, in a legal cannabis market estimated at about $12 billion worldwide in 2018. 

The leader of one of Sacramento’s 30 licensed dispensaries responds similarly. Customers don’t want to carry a special card or have an app on their phone; they want to use their own debit card, says Kimberly Cargile, executive director of Sacramento-based dispensary A Therapeutic Alternative. “Just about every day I get an email saying someone has a banking solution,” she says. “And so far I haven’t found any that are true solutions.”

Instead, her company has gone the traditional route, working with one of the few banks willing to do business with a legal dispensary. Of course, that means submitting to the upside-down economics of marijuana finance. To hold their money, her bank charges about $6,000 a month.