I thought I read somewhere that Obama has/is setting out guidelines for banks to deal with weed money. I'll try and find the article.

But yeah, at the moment these guys are having to hide a shit load of cash in all sorts of places. Driving it around town to deposit various places etc.

Yes attorney general eric holder said the other day that they will be releasing updated information "very soon" in regards to banks working with dispensaries.  He said he was worried about these businesses dealing only with cash and the increased risk of crime that dealing only in cash can bring with it.

He didn't exactly say what those regulations would be or if they would allow banks to work with pot stores. But it certainly sounds like thats the approach they may end up going with.  That would be a pretty big news for the marijuana industry and send a clear message that the feds aren't going to keep bothering legal marijuana states like they have in the past (california and dea raids for example).

Right now, all those merchants using BitPay doesn't really "take" the bitcoin as a payment.
With the current price fluctuation, it would not be easier to ask merchants to hold bitcoin for days.

I know the owners of a cannabis shop here in Colorado and they are looking into getting a merchant account with coinbase to start taking BTC.

They're goin' to run into the same problem, for Coinbase is governed by the same laws that BitPay is (or is it are?)

What if none of the payment processors will handle any drug money?

My thoughts exactly. Set up Blockchain app and take payments by having customers scan your QR. Simples.

Can't they just flog it on an exchange themselves?

What if they downloaded Bitcoin QT, accepted the Bitcoins, created an account on Coinbase, proceeded to SELL the bitcoins on coinbase after they received it in their QT wallet, and called it a day?