Banking is one of the biggest issues for all cannabis companies. Despite widespread legalization, the plant remains federally illegal—meaning most major banks won’t touch money exchanged within the cannabis industry. With limited options for cannabis banking, what are new businesses supposed to do? How can they move beyond cash and step into payment processing?
Fortunately, there are a few trustworthy solutions for your cannabis banking challenges that are especially helpful for retailers.
The Trouble With Cannabis Banking
In the early days of cannabis legalization, many reputable cannabis companies bounced from bank to bank, only to get shut down once the provider realized they were in the marijuana industry. Wait, did we say in the “early days”? Oh, that’s still happening.
Cannabis is primarily a cash industry notorious for shuffling around bags of twenty dollar bills, and every dispensary has a cash counting machine (or two) in the back office. The lack of banking or limited access to traditional banking forces many marijuana-related businesses to operate on a cash-only basis.
This is a nightmare for any cannabis accountant, but it’s also an invitation for theft and robbery. It’s no secret that cannabis distribution vehicles and many dispensaries contain large volumes of cash at any given time. The risks involved with this inconvenient practice are an unfortunate reality that requires a change at the federal level.
How the SAFE Banking Act Can Help
Currently, there is one bill that could majorly change cannabis banking. The Secure and Fair Enforcement Banking Act (SAFE Banking Act) protects banks should they provide services to marijuana-related businesses, ensuring that federal regulators cannot take action against them. The bill passed in the House in 2021 but is still awaiting Senate approval.
If the SAFE Banking Act passes, it will immediately eradicate many cannabis banking problems. As of now, legal marijuana businesses have extreme limitations compared to regular organizations. For example, many financial institutions are hesitant to issue credit or debit cards to cannabis operators, and many companies complain that deposits are held for unnecessary amounts of time.
However unfair, it’s also unreasonable to blame banks for their reluctance to offer services to cannabis businesses. Financial institutions fear punishments for violations such as money laundering if they were to hold or exchange funds used for commercial marijuana production, sale, and distribution. The SAFE Banking Act would alleviate this concern and allow traditional banking options for the cannabis industry. Marijuana-related businesses need reliable, secure service providers for their banking and payment processing.
Payment Options for Cannabis Retailers
Of all cannabis licensees, dispensaries handle the most cash. In a world of instant gratification, convenience is king. Yet, buyers who wish to swipe a credit card for their gummies and dabs are most likely out of luck.
This traditional payment is not legal, though there are some scenarios where you can still swipe a card for weed. Here are the top ways customers pay for their goods at the dispensary checkout.
By now, most customers are familiar with the cash-only policies at most major dispensaries. This method seems easy enough, but it’s not a great option for retailers. First, it reduces their ability to upsell because the customer can only spend what they have on them.
In addition, cash transactions are burdensome for closing out the register, increasing the chance of mistakes while balancing the daily sales. We’ve already talked about the security troubles of holding large sums of cash.
An Automated Clearing House (ACH) transfer is the electronic movement of funds from one bank to another. Because electronic transfers are instant, each party can see the funds as they exit and arrive. This is a simple digital option to offer in addition to running a cash-only retail location.
However, the problem with ACH payments is the need for a third-party solution. For example, the customer would have to create an account through this third-party system before using it for payment at the register.
The best way to mitigate this is with an integrated ACH payment system through the point of sale system. Then, the customer would simply scan a QR code and quickly transfer money electronically.
What’s a cashless ATM? The official term is Point of Banking, but it earned its nickname because it draws money directly from your bank account. The process involves software that is typically integrated into the point of sale (POS) system. The customer will swipe their card and enter their PIN.
However, Point of Banking only allows payments in increments of $5, and every transaction includes a convenience fee that rounds up to the next dollar. Usually, the fee is significantly less than a standalone fee. This method requires a bit of an explanation, so customers do not feel like they are being swindled.
Love it or hate, crypto is here to stay. This digital, anonymous form of currency is slowly gaining popularity in retail environments. For now, there are very few retailers accepting cryptocurrency, but it holds the potential to take up more space in the market.
Credit & Debit Cards
Despite using your card for Point of Banking transactions, you cannot run a regular credit or debit card transaction in a dispensary. The unfortunate truth is that once a dispensary accepts card transactions, the clock starts ticking.
Time and again, the same scenario plays out in dispensaries nationwide. They accept a credit card, and within some time, the credit card company shuts down their merchant account as soon as they realize the funds were used to buy weed. A whole slew of problems begins, and it’s best to avoid rolling the dice on this practice.
Best Payment Processors for Cannabis Retailers
A handful of payment processors make cannabis banking easier for retailers. Each adheres to federal laws and aims to simplify the buying and selling of cannabis for retailers and their customers.
Flowhub is a dedicated application that runs on any POS terminal of your choice. Mac, Windows, and iOS are all Flowhub-friendly. They offer all kinds of bells and whistles in their user-friendly platform, allowing sales reps to set up loyalty programs, customize deals, and even partner with delivery service providers like Dutchie.
They also connect with Metrc, Leafly, Headset, and tons of other great application software. Flowhub uses Point of Banking to provide seamless transactions for their retail partners and their customers.
Paybiotic also uses the cashless ATM approach to cannabis banking in dispensaries. Customers can use any debit card or PIN-enabled credit card to pay. After entering a PIN, the customer is notified of a small convenience fee that will be added to their total. Then, the money is automatically withdrawn from their account and transferred directly to the retailer’s bank account.
Retailers do not pay any processing fees for these transactions and can earn income from the processing fees. In addition, budtenders love Paybiotic for the ease with which customers can add a tip to their purchase.
Aeropay is a financial technology company that deals with ACH transfers. Their goal is to make payment contactless, fast, and secure for all cannabis consumers. When a customer goes to pay for their order, they scan a QR code and quickly connect to their bank account with their normal user ID and password.
The setup is speedy and doesn’t require multiple data fields to create the account—just enough information to keep you and your money safe. Then, the customer approves the sale and the funds are transferred electronically.
Find a Payment Processing Partner With cannecht
Cannabis banking needs some work. But, looking forward, it’s only a matter of time before federal regulations will lighten up on our industry and give financial institutions the assurance they need to service new cannabis customers. In the meantime, finding a payment processing partner to suit your needs is exactly what we’re all about.
The cannecht platform helps you cut out the noise and reduce your time to contract with a new cannabis payment processor. Find exactly what you need to help streamline your retail sales and keep your customers coming back for more.
If you are a payment processor focusing on cannabis banking solutions, we’d love to hear from you! Reach out with questions, or sign up for our Beta program and become an early adopter.
If you are a cannabis retailer, learn more about what types of service providers you might meet on the cannecht platform and see how we reduce the time to contract while finding ideal matches to grow your business.