'We're Not Selling Weed, We're Selling Software': How Tech Gets Caught in Marijuana Laws

Tami Abdollah

Tami Abdollah was dot.LA's senior technology reporter. She was previously a national security and cybersecurity reporter for The Associated Press in Washington, D.C. She's been a reporter for the AP in Los Angeles, the Los Angeles Times and for L.A.'s NPR affiliate KPCC. Abdollah spent nearly a year in Iraq as a U.S. government contractor. A native Angeleno, she's traveled the world on $5 a day, taught trad climbing safety classes and is an avid mountaineer. Follow her on Twitter.

'We're Not Selling Weed, We're Selling Software': How Tech Gets Caught in Marijuana Laws

It was a rocky start to the year for Chris Violas, CEO of a growing software startup that services the cannabis industry. Violas got the kind of news that no one really wants to hear: Their payment processor, Stripe, had dumped them.

That meant they couldn't get paid.

"We're not selling weed over here, we're selling software," said Violas, CEO and co-founder of Newport Beach-based BLAZE. "But it's because people keep track of all their weed in our software" that "they wiped their hands."

Stripe did not respond to multiple requests for comment.

As cannabis markets in legalized states continue to mature, troubles with banking and payment processing have impacted growing companies -- even if their workers never even touch the cannabis plant. Companies that exist up and down the supply chain are finding themselves affected, like BLAZE, by the lack of federal decriminalization that makes traditional money-handling institutions wary of finding themselves on the wrong side of federal law.

For Violas, the sudden shift in tone in the fourth quarter, ultimately resulted in BLAZE becoming classified as a "high risk" company by banks and credit card brands. It has to secure a new high-risk merchant account, which means higher fees, to handle payments.

The irony, he told dot.LA, is that BLAZE aims to make compliance easier for those in the cannabis business through its platform that keeps track of their operations. The company, which started in 2016, has 250 clients today and is in use by dispensaries in California, Oregon, Alaska, Michigan, Montana, Colorado, Oklahoma, and Canada, Violas said. BLAZE processes roughly $30 million a month, he said

"You're enforcing all these regulations that continue to get more complex day by day, and we're a tool that's trying to help with this," Violas said. "Our chief compliance officer wrote the regulations for the city of Long Beach. We're trying to help as best as we can, but at the end of the day, we're a venture-backed startup."

The landscape of federal laws and the lack of decriminalization means that companies and professionals in the supply chain of any cannabis-providing entity, can often end up twisting themselves up into pretzel-like forms to try to abide by existing laws.


Tyler Beuerlein, the chief revenue officer of Hypur Inc., which aims to provide technology for financial institutions to enter and scale within highly regulated industries like cannabis, regularly fields calls from attorneys, accountants, companies who lose their banking relationships because their institutions find out they're related to the cannabis industry.

Among those are daily calls from merchants who say "we lost a credit product, a debit product, a reverse ATM, we got shut down," said Beuerlein, who is also the chairman of the Banking & Financial Services Committee for the National Cannabis Industry Assn. But, "the only thing that's going to affect this from a branded card perspective is federal legality."

Beuerlein can cite the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN), guidance by heart, noting that per 2014 guidance, the only remaining guidance that pertains to this industry, "if an entity derives a dollar of income from the industry they're technically a marijuana related industry."

That means that anybody running any form of branded credit card in their cannabis shop is essentially committing fraud by misrepresenting the nature of their business to gain access to that payment processing infrastructure, Beuerlein said.

Beuerlein said Stripe, which uses the branded card rails for their transactions, made the right call on dropping BLAZE because from a regulatory standpoint "if they participate in an industry that's prohibited...they're potentially risking all of their other business lines."

But Brad Rowe, a public policy lecturer at University of California, Los Angeles, who is an expert on cannabis legalization issues and is currently working with municipalities across California on cannabis compliance issues, said it "just doesn't sound right to me."

While noting that he's not an attorney, he wonders why a company providing financial services to another company that provides software for cannabis businesses is a risk. But perhaps the issue is that the money that's being processed is considered "dirty money."

And that's the root of the problem, it seems.

"Any payment solution, including cities and states receiving taxes, are all money laundering," Rowe said. "Eventually the money has to get cleaned so it's useful somewhere. until federal decriminalization. That's the problem with all of this. Everyone's guilty of money laundering."

Rowe reads the legal guidance slightly differently from Beuerlein, using a two-step rule.

"If you are knowingly providing support for a plant-touching business, that is a federal crime, so you are aiding and abetting," Rowe said. "You can be two steps away. So, if you are running a grow and I'm your attorney, your compliance advisor, I'm aiding and abetting in an operation. If someone is providing taxation services to me while I'm working with you that's two-degrees separated and that's OK."

Banks must fill out Suspicious Activity Reports under federal law with FinCEN and cannabis is illegal under federal law.

The issue is "if any money passes through FinCEN, it's got to go through Washington, D.C. If it's got to go through a federally-touching system they're just not supposed to be dealing with that money," Rowe said. "I can buy cannabis with my ATM card, the reason is when I punch my PIN it is withdrawing money from the local bank. It doesn't touch the Treasury. It's all completely ridiculous."

In BLAZE's case, being shut off from one company in particular caused significant cash problems because the cash that came in one day did not come in the next, said Michael Silton, managing director at Act One Ventures, noting that as a lead investor in BLAZE, Violas reached out to him for counsel after he learned about what happened with Stripe.

"From a financial viewpoint, It impacted their cash flow," Silton said. "These customers signed up and were paying for Stripe, all of a sudden, they had to pay for them a different way."

After all, he said, getting paid is critical for a company's ability to grow. Even so, Silton said that despite the temporary setback, he is "optimistic" about the investment and BLAZE because the founding team is so well versed in the industry.

It's made up of a lawyer who has dealt with regulation around cannabis compliance, Violas who built a dispensary and grew a business, and a grower who understands the challenges of growing and producing cannabis.

"Every industry has regulatory risk," Silton said, "and it's a matter of assessing what that risk is, compared to the opportunities and the investment return."


Do you have a story that needs to be told? My DMs are open on Twitter @latams. You can also email me, or ask for my Signal.


Subscribe to our newsletter to catch every headline.

Here’s Why Streaming Looks More and More Like Cable

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
Here’s Why Streaming Looks More and More Like Cable
Evan Xie

The original dream of streaming was all of the content you love, easily accessible on your TV or computer at any time, at a reasonable price. Sadly, Hollywood and Silicon Valley have come together over the last decade or so to recognize that this isn’t really economically viable. Instead, the streaming marketplace is slowly transforming into something approximating Cable Television But Online.

It’s very expensive to make the kinds of shows that generate the kind of enthusiasm and excitement from global audiences that drives the growth of streaming platforms. For every international hit like “Squid Game” or “Money Heist,” Netflix produced dozens of other shows whose titles you have definitely forgotten about.

The marketplace for new TV has become so massively competitive, and the streaming landscape so oversaturated, even relatively popular shows with passionate fanbases that generate real enthusiasm and acclaim from critics often struggle to survive. Disney+ canceled Luscasfilm’s “Willow” after just one season this week, despite being based on a hit Ron Howard film and receiving an 83% critics score on Rotten Tomatoes. Amazon dropped the mystery drama “Three Pines” after one season as well this week, which starred Alfred Molina, also received positive reviews, and is based on a popular series of detective novels.

Even the new season of “The Mandalorian” is off to a sluggish start compared to its previous two Disney+ seasons, and Pedro Pascal is basically the most popular person in America right now.

Now that major players like Netflix, Disney+, and WB Discovery’s HBO Max have entered most of the big international markets, and bombarded consumers there with marketing and promotional efforts, onboarding of new subscribers inevitably has slowed. Combine that with inflation and other economic concerns, and you have a recipe for austerity and belt-tightening among the big streamers that’s virtually guaranteed to turn the smorgasbord of Peak TV into a more conservative a la carte offering. Lots of stuff you like, sure, but in smaller portions.

While Netflix once made its famed billion-dollar mega-deals with top-name creators, now it balks when writer/director Nancy Meyers (“It’s Complicated,” “The Holiday”) asks for $150 million to pay her cast of A-list actors. Her latest romantic comedy will likely move over to Warner Bros., which can open the film in theaters and hopefully recoup Scarlett Johansson and Michael Fassbender’s salaries rather than just spending the money and hoping it lingers longer in the public consciousness than “The Gray Man.”

CNET did the math last month and determined that it’s still cheaper to choose a few subscription streaming services like Netflix and Amazon Prime over a conventional cable TV package by an average of about $30 per month (provided you don’t include the cost of internet service itself). But that means picking and choosing your favorite platforms, as once you start adding all the major offerings out there, the prices add up quickly. (And those are just the biggest services from major Hollywood studios and media companies, let alone smaller, more specialized offerings.) Any kind of cable replacement or live TV streaming platform makes the cost essentially comparable to an old-school cable TV package, around $100 a month or more.

So called FAST, or Free Ad-supported Streaming TV services, have become a popular alternative to paid streaming platforms, with Fox’s Tubi making its first-ever appearance on Nielsen’s monthly platform rankings just last month. (It’s now more popular than the first FAST service to appear on the chart, Paramount Global’s Pluto TV.) According to Nielsen, Tubi now accounts for around 1% of all TV viewing in the US, and its model of 24/7 themed channels supported by semi-frequent ad breaks couldn’t resemble cable television anymore if it tried.

Services like Tubi and Pluto stand to benefit significantly from the new streaming paradigm, and not just from fatigued consumers tired of paying for more content. Cast-off shows and films from bigger streamers like HBO Max often find their way to ad-supported platforms, where they can start bringing in revenue for their original studios and producers. The infamous HBO Max shows like “The Nevers” and “Westworld” that WBD controversially pulled from the HBO Max service can now be found on Tubi or The Roku Channel.

HBO Max’s recently-canceled reality dating series “FBoy Island” has also found a new home, but it’s not on any streaming platform. Season 3 will air on TV’s The CW, along with a new spinoff series called (wait for it) “FGirl Island.” So in at least some ways, “30 Rock” was right: technology really IS cyclical.

As TikTok Faces a Ban, Competitors Prepare to Woo Its User Base

Kristin Snyder

Kristin Snyder is dot.LA's 2022/23 Editorial Fellow. She previously interned with Tiger Oak Media and led the arts section for UCLA's Daily Bruin.

As TikTok Faces a Ban, Competitors Prepare to Woo Its User Base
Evan Xie

This is the web version of dot.LA’s daily newsletter. Sign up to get the latest news on Southern California’s tech, startup and venture capital scene.

Another day, another update in the unending saga that is the potential TikTok ban.

The latest: separate from the various bills proposing a ban, the Biden administration has been in talks with TikTok since September to try and find a solution. Now, having thrown its support behind Senator MarkWarner’s bill, the White House is demanding TikTok’s Chinese parent company, ByteDance, sell its stakes in the company to avoid a ban. This would be a major blow to the business, as TikTok alone is worth between $40 billion and $50 billion—a significant portion of ByteDance’s $220 billion value.

Clearly, TikTok faces an uphill battle as its CEO Shou Zi Chew prepares to testify before the House Energy and Commerce Committee next week. But other social media companies are likely looking forward to seeing their primary competitor go—and are positioning themselves as the best replacement for migrating users.


Last year, The Washington Post reported that Meta paid a consulting firm to plant negative stories about TikTok. Now, Meta is reaping the benefits of TikTok’s downfall, with its shares rising 3% after the White House told TikTok to leave ByteDance. But this initial boost means nothing if the company can’t entice creators and viewers to Instagram and Facebook. And it doesn’t look promising in that regard.

Having waffled between pushing its short-form videos, called Reels, and de-prioritizing them in the algorithm, Instagram announced last week that it would no longer offer monetary bonuses to creators making Reels. This might be because of TikTok’s imminent ban. After all, the program was initially meant to convince TikTok creators to use Instagram—an issue that won’t be as pressing if TikTok users have no choice but to find another platform.


Alternatively, Snap is doing the opposite and luring creators with an ad revenue-sharing program. First launched in 2022, creators are now actively boasting about big earnings from the program, which provides 50% of ad revenue from videos. Snapchat is clearly still trying to win over users with new tech like its OpenAI chatbot, which it launched last month. But it's best bet to woo the TikTok crowd is through its new Sounds features, which suggest audio for different lenses and will match montage videos to a song’s rhythm. Audio clips are crucial to TikTok’s platform, so focusing on integrating songs into content will likely appeal to users looking to recreate that experience.


With its short-form ad revenue-sharing program, YouTube Shorts has already lured over TikTok creators. It's even gotten major stars like Miley Cyrus and Taylor Swift to promote music on Shorts. This is likely where YouTube has the best bet of taking TikTok’s audience. Since TikTok has become deeply intertwined with the music industry, Shorts might be primed to take its spot. And with its new feature that creates compiles all the videos using a specific song, Shorts is likely hoping to capture musicians looking to promote their work.


The most blatant attempt at seducing TikTok users, however, comes from Triller, which launched a portal for people to move their videos from TikTok to its platform. It’s simple, but likely the most effective tactic—and one that other short-form video platforms should try to replicate. With TikTok users worried about losing their backlog of content, this not only lets users archive but also bolsters Triller’s content offerings. The problem, of course, is that Triller isn’t nearly as well known as the other platforms also trying to capture TikTok users. Still, those who are in the know will likely find this option easier than manually re-uploading content to other sites.

It's likely that many of these platforms will see a momentary boost if the TikTok ban goes through. But all of these companies need to ensure that users coming from TikTok actually stay on their platforms. Considering that they have already been upended by one newcomer when TikTok took over, there’s good reason to believe that a new app could come in and swoop up TikTok’s user base. As of right now, it's unclear who will come out on top. But the true loser is the user who has to adhere to the everyday whims of each of these platforms.


We Asked Our Readers How They’re Using AI in a Professional Setting. Here's What They Said

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

We Asked Our Readers How They’re Using AI in a Professional Setting. Here's What They Said
Evan Xie

According to Pew Research data, 27% of Americans interact with AI on a daily basis. With the launch of Open AI’s latest language model GPT-4, we asked our readers how they use AI in a professional capacity. Here’s what they told us:

Read moreShow less