Even though legalized cannabis and cryptocurrency payments are still vexing markets by themselves, WebJoint and Alt Thirty Six are quickly looking to take their combined dispensary play to other businesses.
While crypto has grown popular in other high-risk markets such as gun shops, it hasn't yet made a significant mark among legal pot sellers, who largely rely on cash. Alt Thirty Six has built a blockchain-based digital currency gateway that's designed to provide an alternative to the cash payments that dominate the legal weed payments business because of the reluctance of traditional financial services institutions to serve the cannabis industry.
"We've found the perfect starting place as we build consumer adoption," said Ken Ramirez, CEO and co-founder of Alt Thirty Six, a Tempe, Ariz.-based company that builds platforms for digital currency. "We're starting to see some traction."
The two companies will introduce the program at a beta location in Arizona within the next two months, and later plan to go live at Los Angeles-based WebJoint's 200 dispensary clients.
Their system has some similarities to other attempts to get merchants in and outside of the legal weed business to accept cryptocurrency for payments by removing a lot of the confusion around how cryptocurrency works. In short, Alt Thirty Six and WebJoint are doing most of the heavy lifting so the merchant's don't have to make a huge leap to accept cryptocurrency.
"At the moment the transaction is completed, the funds are transferred to the merchant and we convert the funds to U.S. dollars in our platform," Ramirez said. "We enable all of these operators who aren't familiar with digital currency."
The key to get merchants to accept cryptocurrencies is to make the funds look less like cryptocurrencies. Alt Thirty Six is a Dash-based payment platform. Dash recently partnered with Wall of Coins to make it easier to use "traditional" currency to conduct Dash transactions. There are currently more than 1,000 businesses that accept Dash globally, according to DiscoverDash.
Other companies are trying to encourage merchant acceptance of cryptocurrency through a slick conversion. MoxyOne and Crypterium, for example, also convert cryptocurrency to traditional currency at the point of sale. But these moves have gotten off to a slow start, and cryptocoin payment acceptance remains low. And the legal weed business also mixed results with noncash payment alternatives.
"Support from the banking system to enable funding faces the same federal regulatory nightmare as the marijuana industry itself," said Tim Sloane, vice president of payments innovation and the director of the Emerging Technologies Advisory Service at Mercator. "Crypto itself is an investment in the U.S. and not yet recognized as a currency. As a result, I expect banks will be very cautious of both and extra cautious of any combination of the two."
Alt Thirty Six and WebJoint attribute the challenges facing weed and cryptocurrency payments to volatility and fees. The decentralized blockchain is less expensive—Alt Thirty Six's transaction fees are around 4%, according to Christopher Dell'Olio, founder and CEO of WebJoint, adding that most cannabis-industry processing fees are about 15%, a cost that often gets pushed to consumers. The blockchain is also a long-term solution rather than the workarounds the legal weed industry has used in the past as an alternative to cash, creating a potential for increased consumer adoption that could be an example for other industries, Dell'Olio said.
There are also fears over volatility given the fast rise and fall of cryptocurrencies, causing some merchants to bail on cryptocurrency.
The volatility can be reduced by executing transactions in real time. Alt Thirty Six and WebJoint lock in the price of the digital currency for seven minutes, according to Ramirez.
"This can be used at bars or even other retailers," Ramirez said. "Our goal is to create a cross-industry adoption of digital currency by making it simpler to use."
WebJoint and Alt Thirty Six could gain some help form the recent Supreme Court ruling that should expand legal sports betting, since it's a signal that a previously fringe business is being legitimized. There's also signs the federal government is softening its stance on legal marijuana. But even given these signals, digitizing such payments could be tough.
"The medical weed industry can leverage the momentum of the sports ruling," said Joe Pappano, senior vice president of Worldpay Gaming. "But there is still a disconnect between cannabis and gambling, given the federal government still considers cannabis to be an illegal substance."