Cannabis and cryptocurrencies are two of the hottest topics in the investing world, and a Seattle-based company called düber is looking to bridge the gap between them. The company is planning a new cryptocurrency called dübercoin (DBR) that will be used to reward cannabis consumers, solve payment problems and alleviate some of the safety hazards that come with a business that deals mostly in cash.
I talked with düber CEO Glenn Ballman about dübercoin and the challenging regulatory environments in both the cannabis and cryptocurrency spaces in Part 1 of this exclusive two part interview.
Karl Kaufman: What was the inspiration for dübercoin?
Glenn Ballman: Cannabis companies have a very difficult time getting bank accounts.
Getting a bank account from a federally chartered bank is impossible because federally, cannabis is still illegal. Getting a bank account at a local credit union is doable but the cost of managing this for the credit unions has gotten quite high, so many of them have discontinued their programs as well.
That’s the backdrop for discussions we started having last year with regulators in California and Oregon around a potential solution — using cryptocurrency to reduce the amount of capital flowing through the system in cash. If you can’t do banking, the only way to really do business is cash. You can’t use credit cards or debit cards because those transactions need to clear into a business banking account. If you don’t have a business bank account, Visa and MasterCard can’t help you.
So everyone operates with cash. When you look at the volumes of cash moving through these dispensaries, they deal with $50-$75,000 per day on pure cash transactions. This makes it difficult to create a safe environment for your employees. It makes it difficult to make payments to the government for taxes.
So you end up doing a lot of things — we see store owners using duffel bags, burying seed containers to store the cash and then using vehicles to move the cash around. Of course, that’s not safe — it’s very easy for someone to steal a very large amount of cash.
Cryptocurrency can reduce the amount of cash moving through the system. You’re never going to eliminate cash completely from any economy. Roughly 30% of all transactions done at retail are still cash.
The goal is not to eliminate cash, because that’s an unlikely outcome, but you can reduce the cash moving through the system and you can enable participants in the industry to pay their taxes using an alternate method. You can increase the safety and increase the velocity and predictability of payments for tax revenue to the state. That’s where it started.
That’s when the light went on and we said the reasons are becoming incredibly compelling to build and launch a dedicated coin for this industry.
Kaufman: How did the ICO process work?
Ballman: It was very difficult to get a law firm that understood cryptocurrencies and the ICO process. We spent a lot of time getting legal comfort for the right way to do this. Anything that we did could never come back to harm our reputations or to affect shareholder value to the negative. We had to be a blue-chip, a gold-chip offering if you will, all the way through. That meant we had to ignore what everyone else was doing, because we saw it as a security from the very start.
We built a securities issuance system and we made sure that every person that looked at our system was accredited. We went to a great deal of cost and expense to make sure that we treated it as though we were actually issuing securities — from the legal opinion all the way through to the actual interactions on the website.
We went through all the mechanics of starting an ICO, but we were still not getting comfort from our contacts with the regulators in Canada and the U.S. Even though we were treating it as a security, they weren’t getting back to us to say there may be additional regulations around this as a security.
We started to get really uncomfortable in December and we decided to completely discontinue it. We sent all of the funds that came in back to the purchasers and discontinued it until we could get proper guidance from the SEC.
There were some other companies that raised money. One in particular raised $70 million, and they were recently hit with a class action lawsuit for selling securites without properly setting up a securities sale structure and exemptions.
Fortunately, we took a cautious, measured approach and we didn’t expose our shareholders to risk. We can actually mint our coins in a matter of hours, all the infrastructure is in place to start trading and to start issuing in the space. We just couldn’t get comfort.
And it’s really a good thing we didn’t, because there’s been additional money transmitter laws. The licensing bureaus for many transmitters, which is different from securities regulators, they are saying that cryptocurrencies are now falling under money transmitting laws. By law, they can’t be a security and a currency. They can’t both be right.
So you can see how the Venn diagram closed really quickly. There’s a zero spot right now to actually do these things.
We’re not going to expose our shareholders to that kind of risk. In Japan or Switzerland, it’s been very clearly defined, but in America and the Canadian market, we have to be very cautious until we get clear guidance.
We really see a compelling need for this cryptocurrency. There are lives at risk, there’s tax revenue that can be collected for the government, and as we sit here with the regulators, and our constituents wait for us to actually issue these, we have the laws changing with the money transmitting.
In Part Two of this interview, we discuss dübercoin’s rewards system for the cannabis industry and why cryptocurrencies are a powder keg waiting to go off. Click here to read it.
