Uncertain legal status of financial transactions in marijuana industry lead to bitcoin, cryptocurrency development

By Steve Brachmann
September 2, 2017

“Bitcoin IMG_5303” by BTC Keychain. Licensed under CC BY 2.0.

On July 27th, the U.S. Senate Committee on Appropriations held a hearing of the full committee to markup several pieces of legislation, including S.1662, the Commerce, Justice, Science, and Related Agencies Appropriations Act for 2018. News reports indicate that, during that hearing, the Senate appropriations committee approved an amendment which would reduce the ability of federal-level law enforcement agencies to interfere with state laws on the medicinal use of marijuana. This amendment comes at a time during which the nascent medical marijuana industry looks as though it’s turning to cryptocurrency in response to the questionable legal status of medical marijuana businesses.

Sen. Patrick Leahy (D-VT) proposed the amendment to allow states to implement medical marijuana laws. The amendment would ensure that none of the funds made available through the appropriations act would be used to prevent any of 46 of the 50 United States from implementing any law authorizing the use, distribution, possession or cultivation of medical marijuana. The amendment does not include the states of Idaho, Kansas, Nebraska or South Dakota, but it does include the District of Columbia, Puerto Rico and Guam.

An article on the medical marijuana amendment published by Congressional blog TheHill quotes Leahy as saying:

“The federal government can’t investigate everything and shouldn’t, and I don’t want them pursuing medical marijuana patients who are following state law… We have more important things for the Department of Justice to do than tracking down doctors or epileptics using medical marijuana legally in their state.”

A press release issued in early August by financial news and publishing company NetworkNewsWire reflects the positive response of the medical marijuana industry to the news of the amendment to the 2018 Commerce appropriations bill. The press release discusses the business activities of medical marijuana firms across the world and cites to polls conducted by both Gallup and CBS News which reflects the changing views of the American public on the legality of marijuana, a sentiment which has become more positive as more states move to legalize either the recreational or the medicinal use of marijuana.

One of the companies cited by the NetworkNewsWire press release as being an innovator in the field of marijuana payments is SinglePoint Inc., a full-service mobile technology provider headquartered in Phoenix, AZ, which also operates a cannabis dispensary hub subsidiary known as SingleSeed. SinglePoint reportedly closed upon a $1 million promissory note with an institutional investor this June and plans to invest the proceeds into the development of a bitcoin solution to conduct non-cash transactions for marijuana products. Bitcoin transaction solutions are also being developed by ChineseInvestors.com Inc., a Chinese-language financial information firm with an increasing presence in the global marijuana industry.

Bitcoin payments for marijuana and related products seem to be developing in response to an industry-wide issue regarding the bankability of marijuana business activities caused by tensions between state and federal level laws on the subject. Even as states increasingly vote for the legalization of marijuana, the plant is still considered a Schedule I drug under the Controlled Substances Act (CSA) which is enforced by the Drug Enforcement Agency (DEA). The tenuous legality of marijuana at the federal level has led to the growth of an industry in which many businesses have to sit on cash without being able to open business accounts with banking institutions which have been concerned with their federal-level legal liability if they accept deposits from marijuana businesses.

The concerns of financial institutions over federal regulations on marijuana don’t seem to be unfounded given the effects of the CSA and marijuana’s Schedule I status on intellectual property owners in the space. The uncertain status of federal registrations for marijuana trademarks is the result of the confluence of the CSA along with 37 CFR 2.69, the statute governing trademarks sought on the sale or transportation of any product which is regulated by an act of Congress. No such regulatory restrictions seem to affect the patenting of medical marijuana-related technologies, however. Through this January, the U.S. Patent and Trademark Office has issued dozens of patents, and published almost as many patent applications, on medical marijuana technologies, including a patent covering a controlled-release chewing gum containing cannabinoids developed by AXIM Biotech.

Increasingly, bitcoin and related cryptocurrencies are becoming the choice for most financial transactions within the nascent marijuana industry as the sector increases in value. North American marijuana sales reached $6.7 billion during 2016 and were expected to rise up to $20.2 billion annually by the year 2021. This June, Bloomberg published an article discussing how SinglePoint and Seattle, WA-based cannabis point-of-sale firm POSaBIT were utilizing bitcoin strategies to conduct transactions for cannabis products while taking steps to comply with federal and state regulations.

For marijuana and other industries that may face regulatory risks which could impede their ability to conduct business, bitcoin offers various benefits. A blog post published by payment processing company Bankcard Brokers discusses bitcoin’s anonymity and availability to high risk industries, as well as the fact that bitcoin transactions cannot be reversed except by the party receiving the bitcoin.

Bitcoin can be exchanged into a variety of other cryptocurrencies and one such cryptocurrency is designed specifically for the cannabis industry. PotCoin is seeking to position itself as the standard form of cryptocurrency payment for transactions in the legalized marijuana industry. PotCoin has proven to be a volatile investment, seeing a 23 percent dip this March in response to news that PotCoin sponsored a recent trip by Dennis Rodman to North Korea; this major decline came one day after PotCoin’s value increased by a dramatic 97 percent. Other types of cryptocurrencies being developed for the marijuana industry include CannabisCoin and WeedCoin.

Bitcoin’s status as a decentralized system for financial transactions stands in some contrast to the current activities being undertaken by a variety of entities seeking patents in the sector. A recent article published by CoinDesk notes that the USPTO published 390 patent applications related to blockchain tech, the underlying distributed ledger technology supporting bitcoin and other cryptocurrencies, between January and July of this year. That represented a 90 percent increase over the number of blockchain-related patent applications published during the same period in 2016. A recent U.S. patent application filed by bitcoin exchange company Coinbase discusses an innovative security system for digital assets such as bitcoin. This March, Reuters reported that the man claiming to be bitcoin’s creator has filed more than 70 patent applications in the UK to protect blockchain-related tech like medical document storage and WiFi security systems.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments. Join the discussion.

  1. Night Writer September 3, 2017 8:30 am

    The marijuana industry tends to expose all the corruption and problems with our government. Just consider that the government’s role of regulation of marijuana is used to create these “grows” and stores that have very large mark-ups of the product. The government rather than trying to regulate and provide the marijuana in an efficient way, have made it ridiculously expensive and given small numbers of people near monopolies.

    Just nuts. Reality. It would be grown in a few old tobacco farms very cheaply instead of these ridiculous grows. And it could be regulated with packaging and taxes.

  2. Mark Nowotarski September 4, 2017 9:17 am

    I did a spot check and it looks like many of the crypto-currency applications are winding up in art unit 3685 (business cryptography). On the one hand, that’s good news for applicants since that’s the one business method art unit that has been relatively unaffected by Alice. See http://www.bilskiblog.com/blog/2017/05/surviving-alice-in-the-e-commerce-arts.html

    On the other hand, it never had a great allowance rate to begin with, only 30%.

    Applicants would do well to draft their applications to find a more receptive art unit.

  3. HeartPTAB September 5, 2017 5:17 pm

    Hold on, Bitcoin was created and grown to $40billion+ (billion with a B) WITHOUT patents and yet you greedy patent folks suggest that patents are needed to develop successful software?

    Hypocrits.

  4. Steve Brachmann September 6, 2017 11:26 am

    @HeartPTAB – http://www.reuters.com/investigates/special-report/bitcoin-wright-patents/

    Bitcoin was developed with technology which is actively being patented. Not sure what’s so greedy about our position that inventors ought to be able to profit from the inventions which they publicly disclose.

  5. Gene Quinn September 6, 2017 11:46 am

    HeartPTAB-

    I’d think you’d get tired of being wrong. There are hundreds of U.S. patents that relate to bitcoin, with more than 1,000 pending patent applications in the U.S. alone. There are dozens of patents that more generally relate to blockchain, and again many hundreds of U.S. patent applications that relate to blockchain technologies. There has been patent activity from the beginning.

    As for needing patents to develop software… you are certainly welcome to develop whatever you want without applying for a patent. Please go right ahead. Of course, don’t complain when others who engage in a business responsible approach squeeze you out.

  6. HeartPTAB September 6, 2017 12:50 pm

    Steve – do some research and you’ll quickly find that Craig S. Wright is NOT Santoshi Nakamoto the creator of Bitcoin. He is merely an imposter trying to profit from Santoshi’s credibility. The real Santoshi could easily prove his identity using the private key used to mine the genesis block, however he chooses to remain anonymous shortly after creation and release of Bitcoin. If Santoshi had wanted patents he would have patented the original revolutionary technology not obvious applications of it.

  7. HeartPTAB September 6, 2017 12:53 pm

    Gene – Bitcoin is today worth $75billion – all without any patent protection.

  8. Gene Quinn September 6, 2017 1:32 pm

    HeartPTAB-

    Your premise is false since there are many hundreds of patents that cover bitcoin. So what you say is simply a lie.

    Also, your last comment said $40 billion, so obviously you can’t keep your own facts straight.

  9. HeartPTAB September 6, 2017 5:15 pm

    “there are many hundreds of patents that cover bitcoin”

    Gene – If someone was able to obtain patents covering Bitcoin only further shows how broken the patent system is. From nothing to $75b in ~8years indicates just how revolutionary it is.

    Regarding $40b vs $75b – I initially went from the last time I checked 2-3 months ago. As it gains traction, it rises accordingly. But do you always resort to cheap shots like “you can’t keep your own facts straight”? Again, $75b instead of $40b only further strengthens my argument that patents aren’t necessary.

  10. Gene Quinn September 6, 2017 5:25 pm

    HeartPTAB-

    You say: “If someone was able to obtain patents covering Bitcoin only further shows how broken the patent system is. From nothing to $75b in ~8years indicates just how revolutionary it is.”

    You mean like smartphones, which have hundreds of thousands of patents?

    Your basis premise is wrong and you seem too self absorbed to even notice. You think patents get in the way, but that is a bunch of nonsense. If patents got in the way of innovation then why don’t those countries without patents have runaway innovation? In fact, those countries without a patent system have no innovation.

  11. HeartPTAB September 6, 2017 7:04 pm

    We’re not talking about smartphones – we’re specifically talking about Bitcoin and the fact that it was created by one person without any patents. To which you argued

    “there are many hundreds of patents that cover bitcoin”

    which, if true, indicates something is wrong simply because if something so revolutionary as Bitcoin (as not only indicated by $75b worth but also by the $150b in all the other cryptocurrencies Bitcoin inspired since) should not allow anyone to stake a claim on Bitcoin.

    The Founders wanted progress in arts&science, not parasites on true innovations (such as Bitcoin).

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