Cannabis and Crypto
A young company drives the convergence of two emerging markets
Story by JOSEPH CALABRO
It’s just after 1 p.m. on April 20. It’s a sunny Friday in Seattle, and three hours from now, pre-rolls will be lit, edibles consumed and Snapchat stories overlaid with bulky white lettering proudly displaying: “4:20.”
The man sitting across from me in 13 Coins’ bustling King Street location will likely not touch flame to kush — he has a business meeting at his office a couple blocks away that should take him through the afternoon — but he will celebrate.
He quits probing his mouth with a toothpick, shakes his head and smiles.
“It’s our biggest day of the year. It’s like Christmas and New Year’s rolled into one for this industry,” POSaBIT Co-Founder Jon Baugher says.
Baugher, who now serves as chief revenue officer, isn’t in the business of cannabis. He’s in the business of cryptocurrency. The cannabis industry is POSaBIT’s single biggest vertical market.
He orders a Deschutes Mirror Pond Pale Ale but later tells me he’s come to prefer marijuana to alcohol as a nightcap. There’s no nasty hangover, no empty calories and no risk of acting like an ass.
It’s a fitting attitude for someone who provides services to cannabis retailers across Washington, Colorado and California.
His services are unique and free of competitors that operate a similar model, Baugher says.
“I think in early days, other companies tried to figure out how to use cryptocurrency as a method of payment for cash-only businesses like the cannabis industry,” Baugher says. “But they operated under the assumption that consumers were walking into the stores with crypto and wanting to spend them when, in reality, they’re not. You actually have to give them a way to first acquire it if they're going to spend it.”
So, Baugher and POSaBIT CEO Ryan Hamlin did just that. They created a way for customers to acquire cryptocurrency, like Bitcoin, and spend it within seconds.
The feature is integrated into a merchant’s point of sale system — the “POS” in POSaBIT. A POS system is common in most businesses. It combines essential software and hardware to total a bill, scan a credit card, print a receipt, track inventory and more.
Let’s say a customer is purchasing 3.5 grams of Blue Dream cannabis. They swipe their debit or credit card on a POS system with POSaBIT and are taken to an interface where they may choose to purchase only enough cryptocurrency to pay for the cannabis or an extra amount. Some stores, like Bellingham’s Trove Cannabis and Dancing Gypsies, don’t allow the second option. The merchant scans the customer’s ID and once the transaction is approved, receives an electronic deposit of U.S. dollars. The customer walks out with their legally purchased marijuana. No cash changes hands.
POSaBIT is now incorporated in the POS systems of 50 stores in Washington state, Colorado and California.
The demand for this system comes from the federal government's refusal to acknowledge cannabis as a legal industry, despite an increasing number of states warming to the idea.
“They’re forced to accept only cash because cannabis is still federally illegal so banks don’t support it in the same way as traditional businesses,” Baugher says. “VISA and MasterCard don’t allow their payment networks to be used for a federally illegal transaction.”
This is why ATMs, with a base withdrawal fee of $2.50, are generally accessible in or near many recreational shops.
Through POSaBIT’s interface, customers aren’t directly purchasing marijuana with their card, they’re purchasing cryptocurrency, then using that cryptocurrency to buy marijuana.
It’s meant to ease customer and merchant interaction. It also provides merchants an avenue to double the sale that would otherwise be brought in from a typical cash transaction, Baugher says.
POSaBIT represents 20 to 30 percent of most stores’ sales volume, according to Baugher.
“Just from a consumer behavior standpoint, people spend a lot more when they use a credit card,” Baugher says. “It’s not cash out of their pocket. It’s this piece of plastic.”
Yvonne Vaughn co-owns Dancing Gypsies, a Bellingham glass and grass shop, with her husband Jeramy. She has used POSaBIT since April and echoed Baugher’s sentiment, saying she found people bought more when they used a debit or credit card.
“People are still surprised because they’re so used to having to pay cash but we try to let people know,” Vaughn says. “A lot of people will come in, ‘Oh, do you have an ATM?’ and we'll let them know we have both, what the fees are for both and they’ll decide which works for them.”
Dancing Gypsies’ base ATM fee is $2.50 but some banks tack on an extra surcharge for the transaction. The POSaBIT in-store fee is $3.50. Vaughn says the extra dollar charged rarely discourages a customer from paying with card. The convenience factor makes POSaBIT tough for customers to turn down, she says.
She also finds a level of comfort in having less cash in the store at one time.
Cash-only businesses are vulnerable to robbery, so businesses like cannabis retail stores that bring in large amounts experience an increased risk. It’s been a major area of concern for state governments, especially in the early days of marijuana retail.