The legal cannabis industry began only about a decade ago, but it has experienced phenomenal growth. Grandview Research valued the U.S. market at $9.1 billion in 2020 and forecasts a CAGR of 26.7 percent through 2028. That’s a challenging volume of revenue to manage – and it’s even more challenging considering that cannabis payments are largely cash-only
The State of Cannabis Payment
Cannabis businesses face dangerous situations. Large amounts of cash on hand can make them targets for robbery, possibly putting their employees and facilities at risk of harm. Additionally, a business with thousands of dollars of cash sales each day can struggle with cash management. Issues range from having to use multiple drawers to hold the cash to employee theft and other sources of shrink. Cash also means physically transporting large deposits to the bank each day, racking up labor and mileage costs that digital payments eliminate.
Legislators are working to end the criminalization of cannabis on the federal level, including HR 1996 SAFE Banking Act that creates protection for financial institutions that provide services to cannabis businesses. While the legislative process advances, however, companies need better solutions for cannabis payments.
Avoid Cashless ATMs or Point-of-Banking Solutions
Visa recently sent a memo to acquirers that it prohibits a scheme known as “cashless ATMs”. With Cashless ATMs, no cash disbursements are made to cardholders. Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement. The purchase transactions are subsequently submitted to Visa’s Plus network, which is exclusively reserved for ATM cash disbursements (Visa).
Alternatives to Cash-Only Cannabis Payments
Innovators have taken the problem of cannabis payment head-on, and a few options have emerged that businesses can use today:
- ACH-Based Apps
Several developers have created closed-loop apps that allow a consumer to deposit funds into the mobile wallet on the app, then use it to purchase cannabis. However, the adoption of an app-based solution that includes providing banking info has been very slow. - PIN Debit-Only Solutions
The closest current option to a standard integrated payment solution is a debit-only solution authenticated by PIN. Debit-only transactions are using the same payment rails as credit transactions. Banks that support these transactions are completely transparent to regulators, confirming that all transactions comply with regulations, including anti-money laundering laws.
Be Ready to Transition When the Time Comes
Cannabis solutions providers find that PIN debit-only solutions are the most practical way to overcome their clients’ payment challenges. Also, with the right payments partner, they can provide a path to upgrade seamlessly to credit and debit card payments once legislation changes.
PIN debit-only solutions also position your business for strong, continued relationships with your customers. Implementing a solution now that would have to be completely replaced later when your customer is allowed to move to integrated payments could open the door to competition.
It’s smart to address the pain point of cannabis payments with a future-proof solution that enables a form of digital payments now and allows businesses to pivot when they have the opportunity to accept credit and debit cards in the future.
Read our case study for an illustration of additional ways you can facilitate cannabis payments.
