Chuck Epstein, Author at Green Market Report

Chuck EpsteinChuck EpsteinDecember 6, 2017
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11min37914

Barred from using the traditional banking system by federal and state laws, cannabis dispensaries nationwide have explored alternative, non-cash options in order to conduct their daily business, but so far they have not been widely adopting the use of electronic cryptocurrencies to do business.

“What makes cashless currencies so attractive (the lack of a paper trail) is exactly why our bank would never allow us to use it,” according to Zachary Zises, owner at Dispensary33 in Chicago. “We need to be able to demonstrate total transactional accountability and transparency in order to have any access to the banking system, which is why cash remains king at medical cannabis dispensaries,”

As a result of being locked out of the traditional banking system, dispensaries mostly operate in a cash environment due to their limited access to even the most simple business vehicles, a checking account. As a result, this situation has made dispensaries go through extra work in order to meet their record keeping and compliance obligations to state authorities.

Since cannabis is a Schedule 1 controlled substance, the IRS has stated that dispensaries and others in the cannabis production and cultivation cycle can only deduct expenses related to the costs of goods sold for federal reporting purposes. This means cannabis business can pay tax rates as high as 75% to 90% of net income, according to the accounting firm of Daszkal Bolton. To complicate matters, each state has its own tax laws covering legitimate deduction, including excise taxes on farming and dispensaries.

Yet while the link between being a cash business and meeting state and federal tax standards is easily done in most industries, the cannabis industry does not have a seamless way to do business, while also meeting its tax and regulatory obligations.

On its face, Bitcoin could be considered as a solution to this problem. It has been hailed by its advocates as a transformational invention because it has two purposes: as a digital currency and as an open-source software that can be used to facilitate financial operations and transaction processing on a global basis.

As a digital currency, Bitcoin can be managed electronically from anywhere in the world. It also is becoming more widely accepted by banks and merchants outside of the cannabis industry. In its other form, as an open-source software, the Bitcoin technology platform is being used by institutional financial traders and software developers to transform the operational and transactional sides of the financial industry.

Cryptocurrency Adoption Is Limited

 

Outside the U.S., PotCoin, the digital currency that facilitates transactions within the legalized cannabis industry, announced in December that it will be launching a promotion with the Canadian federally-licensed producer and distributor of medical cannabis WeedMD Inc. On its website, PotCoin said this deal is “what appears to be the first association between a cryptocurrency and a licensed producer to date.” The company said it sees this “as a major move towards faster adoption by cannabis vendors and suppliers.”

At the individual consumer level, cryptocurrencies may have a larger role. In June 2017, Bloomberg reported that two start-ups, Singlepoint and POSaBIT, were launched that allow individuals to use their credit cards to purchase cannabis from dispensaries. POSaBIT reported that it had 30 dispensaries using its system in Washington state, so customers could buy pot using their credit cards. On Washington dispensary reported that it sold $3 million in 2016 and that 13% of its customers were charging their purchases using POSaBIT.

Yet while there have been some advances in using cryptocurrencies at the customer level, dispensaries themselves have been slower to adopt cryptocurrencies at the managerial level. “I don’t know of any dispensaries in Chicago that accept the electronic currencies,” Zises of Dispensary 33 in Chicago said. “We have too many strict state and federal standards to meet, and right now, the cryptocurrencies don’t allow us to meet those high standards. I don’t think there is any regulated market where a state regulatory agency would allow it, but it’s just a guess.”

 

The Basics of Bitcoin

 

Introduced in 2013, Bitcoin is a type of digital currency, printed in a fixed quantity: Only 21 million Bitcoins will ever be issued on a declining scale that will end in 2140.This currency is the first in the world that is created and managed electronically.

This means there are no banks or middlemen needed to handle transactions. This makes Bitcoin a very disruptive invention since it eliminates the need for credit cards or bank accounts. Money can be transferred instantly and free, so there could be no need for wire transfers or money orders.

While Bitcoins are electronic money (they are also called a “cryptocurrency”), they can be purchased at ATMs, from other Bitcoin owners, or online exchanges. Once the Bitcoins are purchased and entered into the system, they become totally usable, electronic, transferable and anonymous. This means Bitcoins can be spent, sent, saved, or easily converted into any nation’s paper currency.

So once users recognized that Bitcoin is liquid, they attracted the attention of financial types who saw they could become an investable asset despite their very special qualities. One of those special qualities is that Bitcoin is considered property by the IRS in the United States. This means an investment structure cannot directly own Bitcoin, but it can hold Bitcoin as part of shares in an investment trust, which has purchased Bitcoins.

The other problem is that the financial, regulators and the courts are not clear about how to classify Bitcoin. Recent rulings have found it to be a cash equivalent, a security, a commodity and a foreign currency. This confusion explains why regulators are uncertain about its legal and regulatory jurisdiction.

Cannabis Cryptocurrencies

 

Matt Karnes, the founder of GreenWave Advisors said, “Because cryptocurrencies are so controversial, we believe its use raises added concern for the cannabis industry, which already faces its own unique challenges for banking and do not consider it a viable option at this point in time.” This is just a list of current cannabis-focused cryptocurrencies as compiled by GreenWave.

CCN CannaCoin
THC The Hemp Coin
MARYJ MaryJane Coin
WETK Weed Tokens
POT Pot Coin
BGR Bongger
DOPE Dope Coin
CANN Cannabis Coin
STV Sativa Coin
GROW Grow Coin
SPARK Spark Coin

 


Chuck EpsteinChuck EpsteinNovember 15, 2017
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6min7510

Hindered by the inability for most cannabis industry companies to make daily cash transactions seamlessly in the existing financial system, a new company is launching a cryptocurrency-based system based on decentralized blockchain technology to design and implement a global, multi-level, non-cash transaction platform operating on autonomous PerksCoin (PRC) tokens.

The new crypto-currency platform will be funded via an Initial Coin Offering (ICO), akin to a Kickstarter, that begins with a private pre-sale that started November 10 followed by the public phase lasting from November 20 to December 18. This will be followed by a crowd sale that ends in January 2018. So far, the company said it has 290 participants signed for its pre-sale.

Operating since 2014, the company, CannaSOS Corporation, based in Toronto, said its system could “revolutionize” the way the cannabis industry manages both its financial and marketing transactions since its platform offers social, advertising and marketing capabilities that will address existing prohibitions against launching national ad programs using established online and offline media.

Since 2014, the company has been losing money, according to Daniel Cheine, co-founder and account manager at CannaSOS Corp., as it built up its cannabis industry databases. In July 2017, the firm began selling ads and that has reversed the trend.

In a white paper explaining the Global PTP Ecosystem, the company said “for marijuana users, doctors, publishers and canna enthusiasts to connect directly via a self-serving online marketplace. Advertisers can purchase advertising space, post sponsored articles, acquire business membership, and much more.”

Since 2014, the company said it has acquired over 315,000 registered members, 950 business pages, 4,800 marijuana strain database and 200 social groups. “Today, CannaSOS is a comprehensive social network and sophisticated advertising platform designed primarily for the cannabis industry. CannaSOS is a successful prototype of a global P2P ecosystem,” according to the company’s white paper.

Working with its partners, including CannaLogic, NaturePay, Pundi X, Spare, Icobox and Naurepay, the company said that within three months after the ICO is completed, its platform will be accessible at over 5,000 locations in the U.S., Canada, and parts of Southeast Asia.

The New Platform

On the financial side, the company said its proprietary PerksCoin Transaction Platform (PTP) is designed to be liquid, secure and transparent. In addition, it will guarantee security, transparency, and safety of all PRC token based transactions; act as a mediator/arbitrator between seller and buyer; support peer-to-peer PRC token sale, eliminating middleman and associated costs; and offer a “Secure Sale” feature to protect buyers from unverified sellers, minimizing fraudulent activity in the marketplace.

According to the company, PRCs are “a utility token available for use within the multi-level transaction platform developed by CannaSOS. PerksCoin token is not a security token, as it is not backed by any hard assets. PerksCoin tokens are set to run on decentralized blockchain technology, ensuring transparency and security of all financial transactions.” It also stressed that PRCs are not guaranteed to be liquid, guaranteed by a financial institution and that trading depends on the “consensus of its value between the market participants.”

Transactions on the platform will allow users to buy and sell PRCs, as well as use the tokens to buy and sell products and services within the participating business network.

In a white paper explaining the Global PTP Ecosystem, the company said the platform will allow “marijuana users, doctors, publishers and canna enthusiasts to connect directly via a self-serving online marketplace. Advertisers can purchase advertising space, post sponsored articles, acquire business membership, and much more.”

With PRCs as the core of its platform, the company is launching a global loyalty program with PRC token and PerksCoin Transaction System. In the white paper, the company said its “loyalty program can be used online and offline by canna retail and wholesale businesses. The system will integrate with any POS on the market and allow PRC tokens to be used as the main incentive medium.”

PRC tokens will operate on cryptocurrencies since they are secure, fast, have low transaction fees and no third-party interruptions. Payouts will be available in PRC, Bitcoin, and Ethereum.

Our platform is continuously evolving, and we are working hard on developing and implementing unique marketing features that will allow canna related businesses to promote their brands locally and globally. PerksCoin Transaction System will allow participants to engage PRC tokens as a method of payment for advertising on existing CannaSOS advertising platform,” the white paper said.


Chuck EpsteinChuck EpsteinSeptember 23, 2017
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11min12830

Call it good timing, fortuitous luck, or being in the right place at the right time, but the cannabis industry seems poised to become the most technological industry ever to develop.

cannabis4While the assembly line revolutionized auto manufacturing in 1913, this sole technological advance did not immediately change other elements critical to the car business, such as logistics, distribution, financing, vendor input and the vertical integration of manufacturing, sales, customer services and suppliers.

Flash forward 150 years, and the emerging cannabis industry is poised to benefit from faster, cheaper and more flexible computer, web and cloud, and servo technology than any industry ever launched. With these technologies now readily available and more affordable than ever, the cannabis industry has an added benefit:  It is able to attract investors via crowdfunding, as well as more traditional methods to use technology from the first day of any new cannabis company’s grand opening.

Now, the industry is poised to make a giant technological leap forward.

The reason: High technology is going to make sure the near future of cannabis will change significantly. Tech companies based on to Uber, Grubhub, Snapchat, Salesforce.com, Yelp and others already exist to provide the next generation of consumer marijuana business apps and services that will disrupt and streamline the business.  This includes changes in every element of the cannabis industry ranging from extraction, cultivation, vaporizers, and POS, CMS, auditing systems and even deliveries to customers.

The upcoming NewWest Summit to be held in Oakland bills itself as the “first conference to focus exclusively on the game-changing, disruptive developments in technology, investment and media within the Cannabis space.”  According to conference organizer Jim McAlpine, cutting-edge new technologies already exist to propel the industry forward to make it more attractive to investors and customers alike.

The event itself boasts panel discussions, including accredited investors and successful entrepreneurs, and in the past have included industry leaders such as Steve DeAngelo of the Harborside Health Center, the world’s largest dispensary and the CEO of the Eaze delivery service, which has recently closed a fundraising round for $27 million.  McAlpine’s events event attract about hundreds of exhibitors and a few thousand people over two-days.  Trading_Room

Follow the Money

McAlpine noted that the legal cannabis industry is projected to have a $10 billion annual economic impact nationally and the sector is “rapidly professionalizing.”  Based on a report from a cannabis industry investment and research firm, The ArcView Group in Oakland, California, the U.S. market for legal cannabis grew 74% in 2014 to $2.7 billion, an increase from $1.5 billion in 2013. And despite rumblings by most 2016 Republican presidential candidates to make marijuana illegal at the federal level, the cannabis industry is projected to generate $11 billion in sales annually nationwide by 2019, according to the ArcView report.

To date, nine states–California, Colorado, Washington, Alaska, Oregon, Maine, Massachusetts, and Nevada–have legalized full retail marijuana. Washington, D.C., voters also legalized recreational marijuana use. Twenty-nine states have legalized medical cannabis.

And despite promises from the majority of 2016 Republican presidential candidates to enforce federal law that would effectively repeal existing state de-criminalization initiatives, public opinion shows more people favor the decriminalization of marijuana nationwide than ever before.

Yet the legal uncertainties have not dampened the enthusiasm for this growing market and its adoption of new technology. According to Chris Gromek, Founder of Marijuanomics, one major engine behind the fast adaption of technology has been in the number of consultants. Gromek noticed that from attending two industry conferences four months apart, he saw more consultants offering fully-integrated, turn-key services that included everything from automated plant and growing operations to point-of-sales and compliance software. The full-service consulting firms in this space include Aperature Consulting and American Cannabis Co. Aperature offers services for people just entering the business to established operations who want to expand, according to their web site.

While these services can make a business owner’s job easier, they also will make the industry “super-competitive,” Gromek said. More competition also will be accompanied by falling product prices and this will squeeze profits dramatically, he added.

It will also spur the search for new customer services. For example, Gromek said his former employer MJIC Media started to sign up clients for membership packages and was working with groups, such as Lexaria that were expanding their CBD product line due to a new technique it discovered that drastically improves gastrointestinal absorption of cannabidiol, as well as CLS Holdings, an extraction firm.

An Awakening Technological and Social Giant

But despite the legal and political uncertainties, the cannabis industry’s huge growth potential has become a magnet for investors and technologists ready to adapt, sell or develop new automated tools for every aspect of this plant-based business. This includes everything technological from automated greenhouses for cultivators, to pharmaceutical-grade testing laboratories for assuring plant safety and quality, to an electronic product exchange to automated sales and customer services applications and even homes delivery services to patients.

One of the most advanced, core building blocks of any plant-based commodity business is an exchange where price discovery between buyers and sellers can take place on in an open marker. There are currently three such venues, Amercanex, CCX and CHEX.  These exchanges match buyers and sellers with a clearinghouse and financial guarantee feature.  In the case of Amercanex, the services provided include transportation, storing and quality grading all transacted on an electronic platform, according to Amercanex CEO Steve Janjik.

While research into cannabis is prohibited by US law, other nations hail its benefits.

While research into cannabis is prohibited by US law, other nations hail its benefits.

According to the company’s web site, the Amercanex exchange connects products, pricing, and availability that are all posted from multiple market participants.  These include growers, wholesale distributors and retail vendors who are all electronically connected on the marketplace. The best sell and buy prices are shown from the prices received from all participants within the state and network.

The Amercanex system also has anti-money laundering safeguards built into the system and the exchange works like “a banking system” that links buyers and sellers with a payment feature.

Bring It Home

Since this is the age of instant gratification, it only makes sense that someone would come up with the idea of home delivery for cannabis products.  While this feature has already been fully exploited by pizza and Chinese food restaurants, it is an established aspect of modern life.  The cannabis business is no different.  “On the retail end, Southern California has seen a proliferation of delivery services and medical marijuana dispensaries. Hartfield says there are about 1,800 dispensaries in and around Los Angeles, which is almost half of the approximately 5,000 dispensaries nationwide, according to a report in The Forward.

Another report in TechCrunch acknowledges the penchant for immediate gratification and the willingness of people to pay for it. “With mobile usage comes the right-now economy. Anything you want today will come to you on-demand, when you want it — and so shall cannabis. Enterprises are popping up everywhere that promise to deliver your medicine within the hour, and some will even provide a medical consultation via your mobile device. Hungry after you’ve consumed cannabis? Partnerships and cross-marketing opportunities with the $70 billion food-delivery and takeout industry are huge.”


Chuck EpsteinChuck EpsteinSeptember 5, 2017
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7min9451

Fidelity National Title Group, a subsidiary of Fidelity National Financial, the largest title insurer in the world, has issued an underwriting bulletin to its agents in 28 states to not insure any land used “for the production or distribution of marijuana.”

According to the memo issued June 29, 2017 by Fidelity National Title, the company’s Chief Underwriting Counsel said that properties in the 28 states “that have in some capacity legalized cultivation, distribution, manufacture or sale of marijuana products” will not be insured by Fidelity.

The bulletin instructs its agents and people in company operations to include the following language in every title commitment that the company issues in the 28 states. This underwriting bulletin (coded as Fidelity National Title Insurance bulletin 2017 RC-05) states:

“Please be aware that due to the conflict between federal and state laws concerning the cultivation, distribution, manufacture or sale of marijuana, the Company (Fidelity) is not able to close or insure any transaction involving Land that is associated with these activities.”

On its web site, Fidelity National Financial describes itself as “the nation’s largest title insurance company through its title insurance underwriters – Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York – that collectively issue more title insurance policies than any other title company in the United States.”

The bulletin recommends that if a title company sends out a “welcome” package or instructions before closing that it should include a similar statement saying the land will not insured.  The bulletin also says “the sooner we indicate our unwillingness to insure, the better all around.”

In effect, the bulletin can affect the purchase and sale of undeveloped land, commercial properties, retail stores, and houses, where marijuana has been used even in states where it is legal. In effect, the bulletin and denial of title insurance means that many properties will not be financeable in a real estate transaction.

When a commitment letter is sent to a purchaser, the Fidelity underwriting bulletin means a seller and buyer of real estate have to sign an affidavit attesting that the property was not used for any purposes related to cannabis activities.

The bulletin was issued because the company said it did not want to discover at the actual closing event that the property “is used or intended for such purposes,” which would then resulting declining the title insurance coverage. If the statement is sent to buyers before the closing Fidelity said “it should make it easier to decline earlier in the transaction and put the burden of disclosure on the parties to the transaction.”

Impact on Cannabis-Related Real Estate

Reaction to the Fidelity underwriting bulletin was strong. One title insurance executive said the memo “sounds like a game changer” in terms of how cannabis-related properties can be bought and sold.

He also speculated that the company may have been acting in response to federal pressure to stop the expansion of the cannabis industry in states where it has become decriminalized.

The title insurance executive said “this can be a way to shunt this title insurance business to a subsidiary or the re-insurance industry at a much higher cost for title insurance or to use an indemnity policy.

In a LinkedIn post on March 2017, prior to the issuance of the Fidelity underwriting bulletin, attorney Michael J. Moore, citing an earlier 2016 article written by Vince Sliwoski, wrote “in states that have legalized the plant so far, title insurance companies set up a specific exception in their policies which excludes coverage over governmental actions, such as civil and criminal forfeiture of property under the federal Controlled Substance Act. Failure of the purchaser to disclose its intended use of the property may result in the title insurance company denying liability on a claim relating to property forfeiture because of the marijuana activity on the property. It is recommended that a buyer disclose their intended use of the land. Otherwise, the title company has an argument not to pay on claims.”

Moore also said “many title insurance companies have refused to act as an escrow agent for those transactions, because of the uncertain legalities involved. They have refused to handle the transfer of funds and closing documents. Some companies will not get involved in any aspect of the closing process, while others may provide a facility for the settlement of the transaction and issue a title insurance policy. Without title companies providing escrow services, the parties to a transaction must locate neutral third parties to perform the service.”

While the insurance industry, including life, auto, home, have addressed claims and procedures in states where cannabis is legal or decriminalized, the real estate title insurance directive has more significant and expensive implications.

The Fidelity underwriting directive, however, takes the decision to not insure title for cannabis-related properties to a new level and one that may have been developed at the behest of federal authorities.



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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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