Washington pot shops are typically cash-only. Shopping at one, you’ll usually see one or two cheap, portable ATMs that charge $2.95 per withdraw. You can only get multiples of $5 or sometimes $20.
There are a few shops in town that will let you pay your budtender with a debit card. From a customer’s perspective this is more convenient that slogging through the ATM interface. Functionally, though, it’s the same thing: the cashier runs your debit card through an ATM that’s integrated into their cash register instead of a monolithic box. It’s an ATM in a cheap tuxedo. You still have to pay the withdraw fee, and you still have to withdraw/buy an amount that is a multiple of the ATM’s minimum.
But no credit cards. Why? Because big banks and finance companies are nervous about getting in trouble with federal regulators if they finance purchases of a Schedule I prohibited substance, even if that substance has been legalized by state voters. Seattle pot lawyer Daniel Shortt explains: “It’s not that banking is absolutely unavailable. It’s that banks are very risk averse, and larger banks are aware that dealing [with] cannabis brings a host of federal liability.” For this reason, Washington’s legal pot stores have been cash-only since they first started opening for business in 2014. That creates a problem, says Shortt, as well as an opportunity. “The lack of access to banking is going to create opportunity for entrepreneurs” to create “workarounds,” he says.
Enter POSaBIT, a Pioneer Square-based startup that’s using bitcoin (a kind of virtual currency) to let pot customers pay without cash. “I saw an industry that was in dire need of a credit solution,” says POSaBIT CEO and co-founder Ryan Hamlin, a former Microsoft executive. “I said, ‘Software has got to be able to solve this problem’” by eliminating cash from the transaction. He calls POSaBIT a “bitcoin kiosk solution.”
Here’s how the company’s website describes its service:
“POSaBIT gives consumers easy access to bitcoin by allowing them to purchase bitcoin during the retail experience. These wallets can be used to make purchases on the spot or anywhere that accepts bitcoin such as Amazon.com.”
The upshot for customers is that now, at a handful of pot shops, they can easily swipe plastic to buy a gram. POSaBIT is currently available at all three Uncle Ike’s locations, A Greener Today, Herb’s House, and Queen Anne Cannabis Company. It’s also available at some other pot stores in the state and some other non-pot stores in Seattle, according to Hamlin.
Uncle Ike’s starting offering POSaBIT “a week or two ago,” says owner Ian Eisenberg. He says it’s “too early” to say what kind of effect it’s having on business, if any.
The checkout experience of buying pot through POSaBIT is barely distinguishable from typical tablet checkout (via, for insance, Square) you might do at an independent coffee shop. Hand over your credit card for a quick swipe, authorize the transaction, and sign on the touchpad. You can even add a tip. There’s a flat $2 charge each time you use POSaBIT, and an upper limit of $150 “to limit any exposure to Bitcoin abuse,” says Hamlin. He says that limit will eventually double.
Hamlin explains that the crucial feature of his service (from a legal liability standpoint) is that customers who buy bitcoins from POSaBIT kiosks inside pot shops can choose to walk out of the store with those bitcoins and without ever buying any pot. There’s nothing requiring them to spend the bitcoins in the store. Hence Hamlin and POSaBIT’s ability to plausibly argue that this isn’t just money laundering scheme; it’s a legitimate currency changing service that fortuitously happens to all but remove friction between legally-sold pot and your credit card.
“We are selling bitcoin to [individual] customers, and allow our [pot store] customers to accept bitcoin as payment,” says Hamlin. “Obviously federal laws prohibit using credit cards to purchase cannabis,” he says. “That’s exactly what we’re not doing.”
Hamlin says the company rolled out pilot locations last summer in Seattle, and has been operating “in stealth mode,” since January. To ensure that POSaBIT is in compliance with everyone and everything, the company became licensed with the state as a money transmitter/currency exchanger. They do an internal audit twice a year, Hamlin says, and had a legal team from the firm Perkins Couie carefully review their plans. “They’ve vetted everything,” he says. The result: a “rich anti-money laundering policy” that serves as the “secret sauce” of POSaBIT’s business model.
UPDATE Some of the comments on this story suggested that banks might cancel the accounts of people who use POSaBIT at pot shops. We asked Ann Flannigan, vice president of public relations at WSECU, about this. Short answer: nope.
“WSECU sees purchases run through our system now on credit and debit cards for bitcoin exchange. And although there is uncertainty around virtual currency, it is legal in the U.S. We do not block these kind of transactions for money services. In the case you raised, we don’t believe the location of the machine offering the exchange is relevant, nor is what the person is going to purchase with the virtual currency. It’s analogous to credit union members using their debit or credit cards at ATM machines found at some retail marijuana locations to withdraw cash to pay for their purchases. Those transactions are coded simply as an ATM withdrawal. It doesn’t matter that the machine is in [a pot shop]. Purchases from legally-licensed marijuana related businesses are just that: legal under state law. As a financial institution, we don’t have a stake in how a consumer pays for what they buy.”