Cannabis, Cryptocurrency and Compliance: One Man’s Quest to Support Unbanked Businesses
Ernesto Huerto faces a twin challenge upon awakening each morning: keeping his own business afloat, while doing the same for his clients. It’s not that business is bad – in fact, Crypto Space is booming. Rather, the realities of operating in the cryptocurrency industry mean Huerto is constantly at risk of having the rug pulled from under his feet by the banks. His clients, many of whom operate in the marijuana industry, face the same challenge. Crypto Space is thriving thanks to a series of crypto ATMs installed in multiple locations, and Huerto has found a niche in aiding businesses specializing in medical marijuana and money transmission – all performed legally and by the book.
On this week’s Humans of Bitcoin podcast, Huerto tells host Matt Aaron about the struggles he faces in the day-to-day running of Crypto Space, but explains why he wouldn’t want to be doing anything else. The brick and mortar premises, Huerto recounts, “is more like a crypto bank, a place where you can get instant settlement and where we solve people’s problems. They can buy large amounts of crypto and have zero slippage and instant transactions.”
The physical lounge forms a laid back spot for like-minded souls to hang out, drink beer and talk about bitcoin and trade cryptocurrencies such as BCH and BTC. But there’s also serious business to be done. In addition to the legal marijuana industry, notes podcast host Matt Aaron, “there are many industries that don’t have bank accounts. Ernesto is building trust in an industry that needs trusts because it’s confusing, and there’s a lot of scams, but he’s thriving because he’s solving the problem for people who have trouble with cash.”
“There’s a lot of companies, including real estate companies, that know crypto is there, they want to take payment in crypto and hold it as an asset but they don’t even understand how to secure their assets,” explains Huerto. “Say they buy a million dollars worth of crypto, how do they secure it? So we help them set up their security, get them a pen tester to penetrate their systems and make sure that their business and their home networks are secure, and will help them set up their Ledgers, their multi-sig wallets etcetera.”
Because cannabis is not legal federally, but is legal in the state of California, Huerto has found himself aiding a lot of marijuana companies that have been frozen out of the financial system. “You know, they have to buy products, they have to buy seeds, they have to buy fertilizer equipment, so they need to spend [money] and there’s no real outlet for them,” he observes, before pointing out some of the crypto-based solutions available. “One solution in regards to compliantly onboarding significant amounts of cash,” outlines Huerto, “is through the smart ATM network with full biometric KYC for compliance; everything that the government needs or the state needs in regards to doing a legal transaction. So we would work with a medical marijuana dispensary, and maybe they could take bitcoin at their dispensary and we’d set them up and show them how to store that and then they could put an ATM in the dispensary.” It’s not just dispensaries that have a need for Crypto Space’s services, for Huerto notes:
As soon as you register as a money services business, it’s close to impossible to maintain or get a bank account. So they force you to deal with cash, kind of like cannabis companies.
Not everyone who walks through the doors of Crypto Space can become a customer however. “Unfortunately, we have to turn down a lot of business because of compliance which we take very seriously. If someone comes in and says ‘Hey, I got this bag full of cash and I’d like to buy some bitcoin,’ I’m like, ‘Sure, let’s see your ID, I got to source the funds’ and then they’re like ‘Well, maybe not.’ We have to be very, very careful. But if they do pass compliance, and everything’s good, we can settle instantly.”
There’s a lot of dirty money flowing around by the government or the banks restricting crypto companies,” claims Huerto. “It’s like Prohibition in the 20s with, like, Al Capone and everything. They criminalize banking, they create these monsters, they create these underground networks. Because the moment you criminalize something, it brings out this whole other problem, right?” He is scathing of U.S. banks and the fact that “They can choose to do business or not do business with whomever they want. I know this from dozens of letters that either my clients have gotten, or I have gotten, that what they do is freeze your funds to hold them for 10 business days, and you get a letter saying, ‘We’re not telling you why we are closing your bank account, the decision is final’.” Huerto continues:
You’ll get a cashier’s check [from the bank] in 10 business days. So they don’t tell you why. And they say the decision is final, and they steal your money. And they play with it for god knows how long until they decide they’re going to give it back to you.
“I can tell you right now that JP Morgan Chase does not do that – they freeze your funds,” reveals Huerto. “They are going to have a JP Morgan coin, but they’re purging money service businesses and other accounts and freezing their funds. I’m telling you this from first hand experience. If JPMorgan Chase is listening, I’d like my $100,000 back – they’re holding it hostage.” The banking giant had been holding onto Huerto’s funds for around a week at the time of recording the podcast. “Maybe I’ll get it back. Maybe I won’t,” he muses. “But JPMorgan Chase – shame on you. We are a compliant and legitimate company and they’re holding our money.”
Have you experienced banking problems while operating a cryptocurrency business? Let us know in the comments section below.
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