They Waited Until You Hit $11 Billion. Then They Sent the Bill. 💸

Welcome to Advance Genie, the newsletter that helps operators in high-friction industries find smarter paths to capital.

Prediction markets spent 2025 proving their business model. 

Kalshi's valuation doubled to $11 billion. The sector processed $23.8 billion in annual volume. Daily transactions hit $291 million by New Year's Day. Major operators including DraftKings and FanDuel entered the space, legitimizing the model.

Then governments moved immediately to extract revenue. Chicago implemented a 10.25% tax on sports betting effective January 1. Illinois imposed tiered taxes reaching 40%. Maryland raised rates from 15% to 20%. 

The Sports Betting Alliance filed suit on January 1 to block Chicago's tax structure.

This is a common pattern for stigmatized industries that scale successfully. Each sector demonstrates the same three-stage cycle at different points.

Stage 1: Prove the model works. Generate measurable revenue. Demonstrate real user demand.

Stage 2: Governments extract revenue. Tax increases arrive within months of proof of viability.

Stage 3: Banking access does not follow policy changes. Alternative infrastructure scales in parallel.

Understanding this pattern helps operators structure for what's coming rather than hoping for acceptance that won't arrive.

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The $11 Billion Valuation That Triggered Taxation

Bloomberg published a major investigation on January 5 examining how prediction market platforms are using sports gambling as an entry point to broader prediction markets. 

The numbers explain why regulators responded so quickly.

Kalshi's valuation doubled from $5.5 billion to $11 billion during 2025. The company processed $23.8 billion in total notional volume last year, representing 1,100% year-over-year growth. By January 1, 2026, Kalshi's daily volume reached $291 million, double the $145 million recorded on December 1.

Combined weekly volume across all prediction market platforms exceeded $4 billion in December 2025. 

These are not experimental products. They are significant financial businesses generating substantial transaction flows.

Tax Increases Arrived Within Six Months

Chicago's 10.25% tax on sports betting revenue took effect January 1, 2026. The city expects to collect $26 million annually to support its 2026 budget. 

The Sports Betting Alliance immediately filed suit arguing the city lacks authority to impose local taxes on gaming revenue without explicit state approval.

Prediction markets showed explosive growth throughout summer 2025. By January 1, Chicago had taxes in place - the gap between proof of viability and revenue extraction was less than six months.

And Chicago isn't alone. 

Illinois implemented a tiered tax system in 2025 charging operators 20-40% based on revenue levels, plus a 25-50 cent per-bet fee. Maryland raised its sports betting tax from 15% to 20%. 

These increases target existing operations generating proven revenue, not new market entrants.

What Regulators Are Really Concerned About

Regulators worry that platforms are using sports betting to build infrastructure for prediction markets on "everything," including geopolitical events, Federal Reserve decisions, and corporate earnings. 

Some bets showed signs of advance information, raising questions about whether prediction markets create unfair information advantages.

Several states have issued cease-and-desist orders. 

Others are considering whether existing gaming regulations apply to CFTC-regulated prediction markets. 

The regulatory response focuses on two issues: whether these platforms operate as unlicensed sportsbooks under state law, and whether they create systemic risks by enabling betting on too many aspects of daily life..

The Executive Order Changed Momentum. Banks Haven't Changed Policy.

On December 18, 2025, President Trump issued an executive order directing federal agencies to complete the process of rescheduling cannabis from Schedule I to Schedule III. 

The industry expected this would unlock banking access, enable traditional M&A transactions, and attract institutional investment.

Important distinction: The executive order accelerated the federal rescheduling process, but until DEA rulemaking is finalized and effective, cannabis remains Schedule I for most practical purposes. Banks and many counterparties will continue to treat cannabis risk largely the same until the rule is final.

What has changed: M&A activity accelerated on the expectation of future regulatory relief. What has not changed yet: banking access and institutional capital flows.

How Cannabis Operators Finance M&A Without Traditional Banking

Minneapolis-based cannabis operator Vireo Growth announced on January 6 that it acquired Eaze, the cannabis delivery platform once valued at nearly $700 million, for $47 million in an all-stock transaction.

All-stock transactions remain standard in cannabis M&A because moving $47 million in cash between cannabis companies remains difficult. 

Traditional M&A deals in most industries use cash, debt financing, or mixed structures. Cannabis operators use equity because banking relationships that enable wire transfers, escrow accounts, and acquisition financing remain limited, expensive, and operationally fragile.

The Vireo-Eaze structure provides a blueprint other operators are following:

All-stock consideration: Eaze shareholders receive Vireo equity rather than cash. This eliminates the need for banking intermediaries to process large cash transactions.

Asset consolidation: Vireo gains 65 retail locations, access to 12+ million delivery orders through Eaze's platform, and entry to California, Florida, and Colorado. The combined company operates 166 retail stores across 10 states with 800,000 square feet of cultivation facilities.

Earnout provisions: Performance-based payments structured as additional equity grants rather than cash earnouts. This maintains the all-stock approach while incentivizing seller performance.

Other financing structures cannabis operators are using:

Seller financing: Buyers make direct payments to sellers over time, reducing reliance on bank intermediaries. Common in smaller transactions where parties have existing relationships.

Revenue-based repayment: Buyers repay acquisition costs as a percentage of revenue from acquired assets. This matches payment obligations to cash generation from the specific acquired business.

Asset-based facilities: Specialized lenders like FundCanna provide financing secured by inventory, equipment, and receivables. These lenders understand cannabis-specific risks and build products around them.

The infrastructure gap remains - the executive order created momentum for deals, but the financial infrastructure to execute traditional cash transactions still does not exist at scale. 

Banks continue to cite federal enforcement risk, regulatory uncertainty, and compliance costs.

Why SAFER Banking Remains Stalled

Despite President Trump's executive order, 48 Republican lawmakers signed letters opposing cannabis rescheduling in 2025. Key opponents include House Speaker Mike Johnson, Senate Majority Whip John Barrasso, and Rep. Andy Harris.

This opposition complicates the SAFER Banking Act, which would provide explicit legal protections for banks serving state-licensed cannabis businesses. 

Senator Cynthia Lummis has stated she supports banking reform but opposes rescheduling, creating contradictory positions that prevent compromise.

On January 5, Congress released a bicameral funding package that removed a House provision blocking DOJ from implementing cannabis rescheduling. This represents Congressional retreat from active opposition. But removing a blocking provision differs from actively supporting banking reform. 

The SAFER Banking Act still lacks sufficient votes to pass.

The result: If and when Schedule III rescheduling becomes effective through DEA rulemaking, Section 280E tax penalties would no longer apply going forward - subject to effective-date and tax-year timing. 

However, this does not automatically provide banking access. Financial institutions will continue refusing cannabis clients without explicit Congressional protection through SAFER Banking or equivalent legislation.

Payment Infrastructure Scaling Outside Traditional Banking

As traditional banking access remains constrained for certain industries, alternative payment infrastructure continued scaling in the first week of 2026.

Stripe and Crypto.com Enable Merchant Crypto Acceptance

Stripe and Crypto.com announced a strategic partnership on January 6 enabling businesses to accept cryptocurrency payments through Crypto.com Pay, with automatic conversion to local fiat currency for bank deposits. 

The partnership connects Crypto.com's 100+ million users to Stripe's merchant network.

This expands payment options for crypto-holding customers but does not eliminate underwriting or bank risk assessment. Your bank can still evaluate your underlying business model regardless of payment method.

Stablecoin Infrastructure Reached $318 Billion

The global stablecoin market reached approximately $318 billion in total market capitalization as of January 6, 2026. 

USDT leads with roughly $187 billion (about 61% market share), while USDC holds approximately $76 billion following significant growth in 2025.

Regulated and institutional-grade stablecoin options have gained traction:

Circle's USDC: ~$76 billion market cap, publicly traded, backed by U.S. Treasury Securities and cash deposits, providing regulatory transparency

PayPal's PYUSD: ~$3.6 billion market cap, backed by a regulated financial institution with existing merchant relationships

Ripple's RLUSD: Growing market cap, benefits from Ripple's existing payment network infrastructure

The GENIUS Act passage in July 2025 established a federal framework for stablecoin regulation, signaling government support for compliant stablecoin growth.

FedNow Expands to 1,500+ Institutions

The Federal Reserve's instant payment network FedNow reached over 1,500 participating financial institutions across all 50 states as of January 1, 2026 - a 44% increase from 2024. 

Transaction limits increased from $1 million to $10 million to support higher-value B2B payments.

The $10 million transaction limit now supports use cases like corporate treasury transfers, payroll funding, vendor payments, and real estate transactions where same-day settlement provides operational advantages.

The Pattern

The infrastructure continues developing.

Stablecoins provide alternative rails for certain use cases. FedNow offers faster settlement for banked businesses. State banking directories identify willing financial institutions for cannabis operators.

The question isn't whether alternative infrastructure exists - it does, with varying applicability by industry.

The question is whether operators build relationships with appropriate infrastructure before proving their model, or scramble to find solutions after governments impose extraction and traditional options remain constrained.

Prediction markets answered that: extraction arrives quickly once you demonstrate viability. Plan the infrastructure first.