Though recreational pot is legal in a number of U.S. states, big banks don’t want to work with cannabis sellers. And that is unlikely to change anytime soon.
Part of the issue is regulation — most banks are averse to marijuana's hazy legal footing — but a growing number of workarounds can help make these businesses less cash-based. The problem is these workarounds aren't as seamless as simply paying by credit or debit card at any other store.
“We’re in a grey area and everybody will have to deal with that,” said Eveline Dang, vice president at Cannapay, a vendor to the legal cannabis industry. “In terms of service providers, it’s our job to provide merchants with the right tools and systems and solutions that they will use to make sure they use them properly to be compliant in every way possible.”
Cannapay is part of an emerging category of providers implementing creative ways to make cannabis payments seem more digital than they actually are. The options include cashless ATMs (which initiate transfers when a customer inserts a debit card) and e-checks.
The drawback of these systems is that point of sale technology isn't designed to interact with them, making implementation often seem like assembling a massive jigsaw puzzle.
“POS systems typically are the core of the business with merchant payments, but now the way that POS systems and payment systems work is that it’s like a work around solution,” Dang said.
When a customer makes a purchase, it isn’t directly connected to a payment system. So the merchant has to go into the POS system and manually confirm that the payment was completed. Since most banks don’t work with dispensaries, the merchants have to write out their transactions to avoid discrepancies.
Starbuds, a marijuana store in Denver — where there are 158 active licensed marijuana stores alone — primarily deals in cash, according to Chris McCullough, the store's vice president of operations.
“At this point the industry has kind of gotten used to it,” McCullough said. “Of course we would enjoy to have credit card systems or a way to process them in an easier fashion.”
Starbuds has an ATM in its store, and McCullough said this is a less expensive alternative to the more inventive workarounds (it is not a client of Cannapay).
A cashless ATM that accepts credit cards may seem similar to the normal credit card payment process, but such systems categorize the transaction as a cash advance — and charge fees accordingly — because even if the money moves digitally, it's not considered a direct payment to the merchant. And if a bank is willing to work with a legal dispensary, it would likely categorize the merchant as high-risk, and adjust its pricing to reflect that.
“Right now there’s just not any credit card systems that are exactly what you find in retail,” McCullough said. “There’s either an extremely high fee on the back end or it’s one of those cashless ATM systems.”
To address the security risk of handling cash, Starbuds has armed guards at each store and cameras covering the area, and McCullough said this system has prevented any issues with handling cash.
McCullough predicts the status quo will change eventually as pot banking restrictions loosen, and as vendors work to provide a more clear benefit to the customer.
Other payments companies working with the legal cannabis industry include Baker, which provides an e-commerce ordering process but requires in-person payments; Global Payout, which supports a closed-loop payment card; and Tokken, which uses a blockchain to provide recordkeeping for legal marijuana sales.
But even in more mature markets for legalized marijuana, such as Amsterdam, there's a stigma to being in this business and merchants typically find themselves obscuring the nature of their businesses when talking to banks.
In the U.S., Dang predicts smaller banks will be the most willing to work with cannabis sellers.
“I do see that trend since we do have some relationships with smaller banks, local and regional banks, and I do see them showing interest,” Dang said.