Brother, Can You Spare a Potcoin?
The U.S. Securities and Exchange Commission (SEC) triggered an earthquake in the investment landscape on Wednesday, giving the green light to rule changes that open the doors for the creation of spot Bitcoin (BTC) exchange-traded funds (ETFs).
The SEC said it approved 11 applications from major asset managers for the first U.S.-listed ETFs to track Bitcoin, including from BlackRock (NYSE: BLK), Ark Investments/21Shares, Fidelity, Invesco, and VanEck.
Below, I’ll explain what the financial mainstreaming of crypto means for the marijuana industry. I’ll delve into the commonalities between cannabis and crypto, examining their convergence from social, political, and investment perspectives. I’ll also explore the rise of “potcoins.”
All eyes on the SEC’s decision…
A spot Bitcoin ETF allows investors to gain exposure to the price of Bitcoin without the complications and risks of owning Bitcoin directly.
The SEC’s groundbreaking decision this week not only means that Bitcoin ETFs from big players are on the horizon, but it also sets the stage for Grayscale’s existing Bitcoin Trust to transform into a much more accessible ETF.
The SEC’s approval was not entirely unexpected but it hadn’t been a foregone conclusion, either. Often in the past, SEC Chair Gary Gensler has expressed skepticism towards Bitcoin and other cryptocurrencies. Gensler maintained his cautious stance in a January 10 statement:
“Importantly, today’s commission action is cabined to [exchange-traded products] holding one non-security commodity, Bitcoin. It should in no way signal the commission’s willingness to say anything about the commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws.”
Crypto and marijuana: mutual disruptors…
In recent years, two seemingly disparate industries have emerged as disruptors of the status quo: marijuana and cryptocurrency. Both are experiencing rapid growth, shifting social perceptions, and evolving legal landscapes. Cannabis and crypto are becoming two sides of the same coin (so to speak).
Marijuana and cryptocurrency share a common origin in the shadows of societal stigma. For years, marijuana was considered a taboo substance, vilified in the “War on Drugs,” while cryptocurrency was often associated with the “dark web” and illegal activities. Despite this, both have undergone a transformation in public perception and legalization.
The legalization of marijuana in various countries and U.S. states has shifted the conversation from prohibition to regulation, leading to a burgeoning legal industry.
And yet, the majority of marijuana sales nationwide are generated in the illicit realm, a fact that will continue for at least the next couple of years. The percentage of marijuana procured through a legal source is expected to increase, but it will still represent only 42% in 2025 (see chart).
The marijuana black market is primarily driven by higher retail costs due to state taxes. Cannabis taxes vary greatly by state. The highest cannabis taxes are in Washington, with a whopping 37% excise tax on the sale of each cannabis product. Oregon is next, with 17%. California and Colorado follow with 15% each. Maine and Nevada share fifth place with 10% each.
However, with continued expansion in the number of cannabis consumers nationally, both legal medical and adult-use markets will increasingly erode the demand met by illicit sources.
Similarly, cryptocurrency has made strides towards legitimacy, with governments acknowledging its potential and exploring regulations. These shared experiences of transitioning from the fringes to the mainstream have fostered a sense of camaraderie between the cannabis and crypto industries.
Social acceptance and inclusion…
The intersection of cannabis and cryptocurrency extends beyond shared stigmatization. Both have attracted a passionate and diverse community of enthusiasts, creating spaces where individuals can advocate for social acceptance and inclusion. This dynamic is strongest among younger demographic groups, especially Millennials.
Much is made of Baby Boomers (which is my generation) and the marijuana boom. After all, it was the Woodstock generation that made Mary Jane synonymous with youthful rebellion.
However, the generation to watch are the Millennials, aka Generation Y (the demographic group that directly follows Generation X).
New Frontier Data has found that 80% of Millennials want marijuana legalized. As the first mainstream cannabis adopters with disposable income, almost half (49%) spend between $50 and $200 per transaction.
According to a report recently released by Stilt, nearly 94% of cryptocurrency buyers are in the age range of 18-40, with Gen Z (18-24) and Millennials (25-40) making up the majority. Gen X (41-56) and Boomers (57+) account for only a small percentage.
The pursuit of social equity…
Cannabis advocates have long championed the medicinal benefits and social equity aspects of weed. The industry has been instrumental in addressing social injustices related to drug convictions, supporting minority entrepreneurs, and promoting responsible use.
In a similar vein, the cryptocurrency community touts financial inclusivity and the decentralization of power, striving to provide access to financial services for unbanked and underbanked populations worldwide.
Moreover, both industries have collaborated with charities and nonprofits, showcasing their commitment to philanthropy. This sense of community and shared values has facilitated the merging of the two sectors, particularly in projects such as blockchain-based supply chain tracking for cannabis products.
The convergence of cannabis and cryptocurrency also finds resonance in the political arena. Both industries have been subject to regulatory scrutiny and, in some cases, opposition. However, their shared experiences in navigating the labyrinth of legal reform have resulted in mutual support.
Cryptocurrency, often viewed with suspicion by governments due to concerns about tax evasion and illegal activities, has found allies in the cannabis industry. Cannabis companies, having navigated the challenges of legal compliance and regulation, are well-positioned to offer insights in creating a regulated framework for cryptocurrencies.
In return, the cryptocurrency community’s expertise in blockchain technology has been embraced by the cannabis sector, providing solutions for transparency and accountability in the supply chain.
Bitcoin, the SEC, and potcoins…
Both cannabis and cryptocurrency offer compelling growth opportunities for investors looking to diversify their portfolios. The SEC’s decision this week on Bitcoin ETFs only underscores the increasing macro importance of crypto.
The accelerating convergence of the marijuana and crypto markets is reflected in the rise of “potcoins,” which are cryptocurrencies specifically designed for the marijuana industry.
Potcoins enable seamless, transparent transactions within the cannabis sector, addressing some of the challenges faced by cannabis businesses in accessing traditional financial services.
A growing trend is crypto payment for pot. Businesses and operators selling or distributing recreational and medical marijuana in the U.S. can’t use banks for their transactions because weed is banned on the federal level as a Schedule I substance. The use of cannabis-specific virtual currencies fills the void.
Cashing in on the “green rush”…
As I’ve just explained, cannabis (just like crypto) has entered the mainstream and presents once-in-a-lifetime investment opportunities. But you need to be selective. Some pot stocks will make investors rich; others will crash and burn.
That’s why you should consider my investment service, Marijuana Profit Alert.
My publication Marijuana Profit Alert provides specific, actionable advice on the best investments in the psychotropic revolution.
Remember, no one fires a starting gun to announce a new bull market. Don’t waste time; get aboard the marijuana megatrend ahead of the next big leg up. For details about the highest-quality pot stocks to buy for 2024 and beyond, click here now.
John Persinos is the chief investment strategist of Marijuana Profit Alert.