As Marijuana Sales Grow, Startups Step in for Wary Banks

http://www.nytimes.com/2016/02/17/business/dealbook/as-marijuana-sales-grow-start-ups-step-in-for-wary-banks.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well

by abruzzi • 10 years ago

68 28 10 years ago

nytimes.com

throwaway2172• 10 years ago

I've only visited a marijuana dispensary once, in Oregon, but my coworker had not problem using her credit card to pay for her recreational marijuana purchase. I'm pretty sure they used Square.

deathhand• 10 years ago

Debit cards can be accepted and is not the same as a credit card transaction.

throwaway2172• 10 years ago

She signed. Does that mean it was processed as a credit-card transaction?

halviti• 10 years ago

All of the dispensaries in Oregon that I know of have ATM machines on the inside and instruct customers that only brought plastic to take out cash for their transactions.

josephpmay• 10 years ago

They were likely using Square in violation of the EULA (many despensaries say that they're "flower shops") and just flying under the radar at the moment.

CPLX• 10 years ago

The blockchain element mentioned further down in the article seems intriguing, but also looks a little like window dressing. Can someone more Bitcoin literate than me explain from a practical standpoint what they are actually doing and what actual benefit is provided by the blockchain integration?

pmorici3• 10 years ago

They could be doing any number of things but I think the general idea is that by keeping track of whatever it is they are tracking on the blockchain it would be impossible for them to modify the record after the fact. If they were keeping track of everything in a private database there is nothing except perhaps procedures they put in place from stopping someone from tampering with those records or the government accusing them of tampering with the records.

Storing the records in the Bitcoin blockchain sort of puts them above reproach with regard to certain accusations.

brighton36• 10 years ago

Some people seem to believe that a blockchain is needed to have an append-only database. Some people believe that saying the word "Blockchain" secures more funding. I'll let you decide which of the two this fundraiser is.

roymurdock• 10 years ago

I was skeptical at first, but I think it's actually a smart move.

Tokken is basically acting as an intermediary between dispensaries and banks, so that banks do not have to shoulder the liability of potentially laundering money. They let Tokken take on that liability instead, and absolve themselves of much of the risk. Plus they only have to conduct due diligence on one organization, rather than a bunch of disparate dispensaries. Tokken gets paid some cut of the revenue that flows through them to the banks. Let's walk through how this will probably work:

Tokken faces the problem of making sure that every transaction they pass on to the banks is completely legal. They can only do this by verifying every Tokken user to make sure they have possession of a current, legal marijuana card at the time of each purchase. Only those with valid credentials will be allowed to use the payments network, otherwise the transaction will be rejected and will not be sent on to the ACH for bank settlement.

A verified patient will link their credit/debit card to their Tokken account, which will track their purchasing behavior (rejecting any illegal purchases, such as too many purchases in a month, or exceeding a certain purchasing limit, etc.). They could also integrate some of the other double-checking solutions mentioned in the article: GPS tracking of each purchase tied to each user, kiosks to accept cash from Tokken card-holding users. The Tokken network will pass valid purchases along to the ACH for bank/credit card account settlement.

At this point, the transaction is verified and should be considered legal enough to not trigger any money-laundering alarms. But banks still can't be 100% sure that Tokken is not simply dipping into its own database to combine valid/invalid transactions, passing dirty money that looks clean up the chain. If Tokken timestamps each transaction on the Blockchain (using some public wallet and transaction ID scheme), this adds another (large) level of security for the banks as they can verify the timestamps generated by each purchase of a user on the Tokken network.

This is not foolproof either, as Tokken could claim the Bitcoin transactions are generated automatically, but could theoretically go in and generate them at will to match doctored accounting records - not likely at high levels of transactions, but still possible.

Ultimately, timestamping each purchase is actually useful if Tokken can prove that it is automatic and that the company does not interfere with the mechanism in any way.

pmorici3• 10 years ago

Is it just me or do phrases like this from the article sound sleazy, "Mr. Zarrad is confident he can stay on the good side of the banks because of his experience as a regulator, and before that, in the financial industry." and " He is planning to approach some of the banks he previously regulated and is hoping that his background will convince them that he understands the compliance issues they are facing."

chestervonwinch• 10 years ago

Why do you say that?

I imagine the banks view dealing with this type of business as high risk. I also imagine that there's a substantial amount of work to maintain legality in this type of business, monetarily. I read the things you cited as merely saying this guy has the background to be capable of putting in the work to maintain legality, potentially lowering the risk of involvement for banks. Maybe I'm misinterpreting.

pmorici3• 10 years ago

Because it has the under tone of, a kind of revolving door where you were once fined for something and are now being offered a pass if only you hire this company run by the guy that used to fine you.

lobo_tuerto• 10 years ago

"... the endless flow of dirty, dangerous, hard-to-track cash."

Wait what?

yolesaber4• 10 years ago

The NYT has a very schizophrenic view of marijuana. On one hand, the editorial board stands behind legalization. Yet they will employ language like this and try to reinforce seedy optics in readers. They also still drug test their employees, one of the few media companies in NYC still doing so to my knowledge.

rajacombinator• 10 years ago

It's part of the cashless society efforts being pushed right now. Stayed tuned you'll be hearing lots of this in months to come.

anon4• 10 years ago

Cash is dangerous. You never know when Abe Lincoln will leap out of your wallet, knife at your throat, demanding all your Benjamins. Also, 100% of people with AIDS have touched cash in their life. Coincidence?

yolesaber4• 10 years ago

I love weed. I smoke it daily. It has helped me with depression and anxiety. But something is troubling with the nascent marijuana industry: moneyed interests are getting in on the ground floor while victims of the drug war rot away in prisons. Despite the legality of weed in Colorado, those imprisoned are still not free [0]. Latinos are incarcerated at 1.5x the rate of whites, blacks 3x as much, despite drug use being equal across the board. Do we call those who grew and sold pot to feed their families entrepreneurs, are they idolized in think pieces? The entire industry has been whitewashed and is still prey to the same racist fears that spurred its prohibition in the first place. Legitimization by the banks isn't going to help end such injustices - if anything, it will simply enable those with wealth.

0. http://www.huffingtonpost.com/2014/02/25/colorado-releasing-...

bobby_9x• 10 years ago

"Latinos are incarcerated at 1.5x the rate of whites, blacks 3x as much, despite drug use being equal across the board"

These studies are flawed. They are based on the person telling the truth about their drug usage.

"Do we call those who grew and sold pot to feed their families entrepreneurs, are they idolized in think pieces?"

What about the people that sell guns to feed their families?

"The entire industry has been whitewashed and is still prey to the same racist fears that spurred its prohibition in the first place."

You must be smoking weed, because this is the most ridiculous thing I've ever heard. Nobody is still attributing weed to only non-whites.

Look at how weed is characterized in movies and TV: white, dopey, college kids.

yolesaber4• 10 years ago

What about the people that sell guns to feed their families?

If someone sold guns when they were illegal and then jailed and then guns made legal, I would say they were wronged by society and should be released from their incarceration.

Look at how weed is characterized in movies and TV: white, dopey, college kids.

Exactly - whitewashing. Marijuana usage is marketed as fun and carefree while ignoring the reality that many, many people are still in jail for crimes that are now business plans.

My whole point is that a large amount of those who were essentially the marijuana industry prior to its legalization are minorities who are disproportionally jailed and the industry is now run by mostly white people who get to reap the rewards. Legalization is seen as a win for personal liberty yet there are still so many in jail.

I would like to see a startup / org that worked towards social justice for these prisoners using the money earned from legalized weed sales.

slavik812• 10 years ago

The logical conclusion of this line of thought is that Al Capone should have walked free when prohibition ended. I can't support that.

Repealing mandatory minimums and revising sentences is something I could get behind. Not because marijuana law has changed, but because they were given unjust sentences in the first place.

dang• 10 years ago

You must be smoking weed, because this is the most ridiculous thing I've ever heard.

It's not ok to be uncivil on Hacker News. We ban accounts that do this repeatedly, so please don't do this.

We detached this subthread from https://news.ycombinator.com/item?id=11120194 and marked it off-topic.

As Marijuana Sales Grow, Startups Step in for Wary Banks

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