Pay Cannabis Tax with Cryptocurrency? California Takes a Look.

16 Mar Pay Cannabis Tax with Cryptocurrency? California Takes a Look.

We’ve written about the potential benefits of harnessing the power of blockchain technology to track and trace cannabis from seed to sale and provide an effective regulatory tool for governments (see here and here). We’ve also warned of the risks and dangers (and outright scams) associated with many cryptocurrencies and the heightened risks that come when a federally prohibited substance is combined with use of typically anonymous cryptocurrencies.

I have been writing and speaking about the potential benefits of blockchain in a variety of contexts, not limited to cannabis. Last month, I spoke about the benefits of blockchain for local governments on a panel hosted by the International City Managers Association, Government Finance Officers Association, and National League of Cities. The consensus in terms of local government use is that blockchain technology has the potential to provide tremendous benefits to local governments in terms of efficiency and transparency, but that it is still very much in the development stages and great skepticism should be exercised when presented with opportunities to implement it. There are still a great deal of scams and misinformation surrounding blockchain technology, especially in the context of cryptocurrency.

A handful of cities and states are pioneering the way forward in adoption of blockchain technology use. This week, California Assembly Members Ting and McCarty introduced AB 953, which would allow local governments accept city or county cannabis license tax amounts due by payment using “stablecoins.” The bill would authorize local governments to either accept stablecoins directly into a digital wallet controlled by that jurisdiction or to utilize a third-party digital asset payment processor that allows for the immediate conversion of any payments made by stablecoins into United States dollars and deposit into an account of that jurisdiction. The vulnerability of digital wallets is explained in my white paper.

A stablecoin is defined in the bill as: “a digital asset that has price stable characteristics pegged to United States dollars and United States dollars serve as collateral to that digital asset.”

Digital asset is defined as “a digital representation of value that is used as a medium of exchange, unit of account, or store of value and is not legal tender, whether or not denominated in legal tender.”

We are very interested in watching how this bill plays out in the Assembly, and will keep the blog updated as things progress. We are skeptical that this particular proposal will succeed, but encouraged that the State Legislature continues to search for viable banking solutions for the cannabis industry. Stay tuned: the bill may be heard in committee on March 24.