Innovations for legal cannabis payments
As marijuana legalization spreads throughout the U.S. and the world, companies in the cannabis market must navigate a delicate tangle of new and old regulations. And many payment providers are unwilling to risk working with dispensaries, leading to some inventive workarounds.
A medical marijuana growing room
Going (almost) digital
E-commerce can bring many efficiencies to a retailer's operations, but in the legalized cannabis industry, payments must still be handled offline.

This places marketing automation provider Baker in the odd situation of launching a white-label e-commerce platform for marijuana dispensaries that will provide tools for pre-ordering, pickup and delivery — but not payments.

So what does the platform's "Buy Now" button actually do?

"Currently, the Buy Now button is a fast track to the shopping cart, allowing the customer to quickly add product to their basket and proceed to the last step of the order flow with one click or tap," said David Champion, Baker's co-founder and chief product officer. "The payment transaction, for now, still happens during pickup or drop-off."
ATM sign
Cashless ATMs
Because banks are still wary of working with marijuana dispensaries, these businesses have to come up with creative ways to accept cards.

One idea is the cashless ATM, which simulates a debit card transaction from the consumer's perspective but is still a cash transaction on the merchant's end.

Customers run transactions at the ATM in the dispensary, which prints out a receipt for the approved transaction. The customer then takes the receipt to the cashier to make a purchase and receive change.

The transaction at the ATM is passed from the customer's bank account to the merchant's bank account via automated clearing house transfers.
legal medical marijuana plant
Going big on compliance
Banks are starting to see the business case in working with cannabis shops. Marijuana-related businesses throughout the United States last year brought in $6.7 billion in sales, an increase of 25% from 2015.

“You’re starting to see a tendency, a healthy capitalistic tendency, for banks and credit unions that know they are missing out on or losing money by not working with marijuana businesses,” said Chistov.

And now Honest Marijuana, true to its name, can be honest with its bank about the product it makes. While Chistov wouldn’t disclose the name of its new banking partner, he said it was a bank like any other, except there are extra compliance procedures for both parties; the grow house must do extra reporting work, which the bank accesses regularly.

The influx of competition has also lowered the fees for the grow house; Honest Marijuana now pays about 1% for payment processing, down from 4.5% it paid previously.

Despite this progress, most financial services providers still see compliance as a hurdle. Only about 300 of the more than 11,000 banks currently operating in the U.S. work with legal pot vendors.

“Paradoxically, most of the institutions nationwide that offer business to marijuana suppliers are small and very unhealthy; most are the ones desperate for income,” said Lamine Zarrad, founder and CEO of Tokken, a Denver-based blockchain startup.
A green debit card
Stored value
Another option is a specialized prepaid and loyalty card for licensed marijuana dispensaries.

In 2014, Cal-Bay International developed the CB Green Card to facilitate purchases of medical and recreational marijuana from licensed dispensaries. It also designed an electronic payment method that could operate on Cal-Bay's payment processing terminal.
Alabama Sen. Jeff Sessions
Learning from example
Payment companies thinking about a future in the cannabis market have much to learn from the past experiences of other high-risk industries.

First off, this up-and-coming market—which is still illegal under federal law—requires payment companies to have exceptionally strong underwriting, due diligence and risk-management practices. They also need a thorough understanding of applicable laws, regulations and card brand rules. Additionally, it’s critical that they advocate for cannabis merchants proactively and reactively, if issues arise.

“This is how the other high-risk industries have managed to thrive in a high-risk space,” says Anthony L. Ogden, an attorney in Beverly Hills, California, who runs BankCardLaw.com, a provider of legal and consulting services to the payments industry.

Certainly, banks and payment companies operating in, or considering, the cannabis space have special considerations. A lot rides on what stance the Trump administration takes. Despite the substance's illegal status under federal law, the Obama administration decided not to interfere with state laws legalizing cannabis. However, that’s subject to change under a new president who has strongly criticized illegal drug use. Also notable is that Trump’s attorney general pick, Jeff Sessions, is a politician with a history of anti-marijuana statements.

“Payment companies are operating in a legal gray area that extends from the Obama administration,” Ogden says.
Barney's coffeeshop in The Netherlands
Creative banking
When there’s talk of Amsterdam, many people immediately conjure up the skunky smell of marijuana emanating from coffeeshops. And they wouldn’t be wrong.

The Dutch city is known for its lax laws surrounding soft drugs like cannabis and psychedelic mushrooms. And it’s been that way for several decades. But even still, cannabis companies have trouble landing banking relationships, much like similar businesses in the US.

“It’s quite a complex issue just the same as in the States,” said Oliver Margerison, director at Amsterdam Genetics, a producer of cannabis products that are then sold to coffeeshops and dispensaries. “Every cannabis-related company in the Netherlands has or has had issues with banking facilities.”

How much contention with financial institutions is dependent on the sector the business falls in, and whether or not it can be fully honest about its operations, said Margerison.

For instance, coffeeshops which also sell food and drink are categorized as horeca businesses, a sector that also includes restaurants that don’t sell cannabis.

“If you say to the bank you are a coffeeshop, there is no way you will acquire a bank account or any other facilities,” said Margerison. “If you say to a bank you are a horeca company and they do not delve deeper, you most likely will acquire the facilities and once you have received the facilities, it is very difficult for the bank to then retract the facilities if they have not done a full investigation into the company in the first instance.”

This legal loophole allows some cannabis companies to secure bank accounts and accept PIN debit transactions.
Hello My Name Is sticker
The name game
Companies in cannabis-related businesses must be careful about how they brand themselves, even if they don't sell recreational or medicinal marijuana.

Janell Thompson and Katarina Maloney say choosing the "wrong" name for their company was all it took to run afoul of banks and be labeled as co-owners of a high-risk business.

That name is HempHealthInc.com, an online business that sells cannabis-related products but is not a medical marijuana dispenser. Its name has led to trouble with banks and processors blocking accounts or refusing to provide merchant services because of the potential risk involved, Thompson said in a 2015 interview.

Thompson and Maloney operate businesses under the names Hookahzz LLC and JKWholesale Inc.

After two years, JPMorgan Chase closed the company's business accounts without specifying a reason, Thompson said, whereas PayPal cited the sale of hemp-related products for not doing business with JKWholesale (PayPal's terms prohibit the sale of drug paraphernalia, including the sale of tobacco and prescription drugs where prohibited by law). The company did not use Chase Paymentech for card services in the past.

"We know we are caught in Choke Point, but we are not medical marijuana or anything illegal," Thompson said. "We are completely clear legally, but the banks and PayPal don't differentiate it, mainly because of the word hemp in our name."