Cannabis Retail Payments outlook in 2021

While it feels as if legalization of cannabis is in full swing, this is just the beginning. Cannabis will be a 30 billion market by 2025, through end of 2020, over 75,000 new cannabis jobs have been created.?

In full swing and while still a sticky issue at the federal level, we continue to gain momentum as more states awaken to the significant economic impacts of legal cannabis. There's a gigantic opportunity for new or expanding marijuana dispensaries — if, you execute well.?

Lots of road bumps remain, with one of the biggest questions still being... Why can’t people use credit cards to pay for cannabis?

In the age of instant gratification, contact-less purchases to one-click purchase, fast and free delivery — consumers expect hassle-free options as a given, no matter what they’re buying.

If you’re in cannabis retail and struggling w/ accepting payments, this guide will help.?

Before we get into specifics, you’ll learn about the cannabis payment processing services currently available, including the risk of taking credit cards. Then, you’ll see how integrated, cashless ATMs or debit card processing can positively impact your business. Finally, we’ll outline the future of cannabis payments and steps you can take to get started with accepting debit cards in your dispensary today.

Available options today in Cannabis:?

Cannabis retailers have relatively few choices for processing cannabis payments. Here are your most likely options and some considerations with each, plus our thoughts on what we think is currently the best option for accepting cannabis purchases.?

Cash is King?

Easy, right? Undoubtedly cash is the most widely available and direct payment method. But cash only comes with other considerations.?

From a retail perspective, being cash only, limits your ability to up-sell customers, and cart sizes are limited to the cash someone has in their pocket (this literally kills any bud-tender up-selling strategy)

Cash Only also presents a logistical and security challenge. Collection at the point of sale becomes more prone to mistakes and inaccuracies as humans are responsible for counting and processing thousands of dollars in cash every single day.

Closing the books at the end of the day also becomes a more complicated endeavor, managers will have to revisit every transaction to figure out discrepancies. Transaction times are slower when you need to count cash and supply change.

Most impact-fully, cash only greatly increases security concerns and costs to transport cash. Throw in the issue of access to banking to deposit that cash. Mandatory compliant, you’ll need large and costly vaults, and?puts a target on retail dispensaries.?

While having an ATM in store mitigates a few of these concerns, they often carry hefty fees and create a disjointed check out experience for customers.

If you’re planning to do delivery at your dispensary, you’ll also have to contend with the fact that drivers might end up carrying around thousands of dollars in cash on a daily basis. This puts them and your revenue at risk.

Beyond security and logistical cash management considerations, there’s also a component of personal safety. As COVID-19 reminded us, cash is dirty. A physical dollar bill can carry pathogens and disease. This is another reason why there’s a renewed desire for touch-less, mobile ways to pay for cannabis products.

Bank Transfers, ACH

A middle ground for dispensaries who don't want as much cash to manage, but who aren't taking debit cards, is accepting electronic funds transfers from their bank account.

ACH stands for Automated Clearing House, and refers to the process of transferring money between banks without checks, wire transfers, or cards. Since these transfers are electronic, businesses can immediately verify that the funds exist and the funds go directly from the customer account to your bank account. ACH or bank transfers are simple, secure, legal, and reliable. ACH is mostly used in the back of house operations where buyers need to pay suppliers, etc. They’re also a go to solution for payment apps.?

The challenge with accepting ACH from your customers is the need for third-party solutions. Two popular options for cannabis business are Hypur Pay and CanPay.?

In both scenarios, customers have to first register through the third-party system and download the mobile app, and then check in at the dispensary through the app. If your POS is integrated, the customer simply enters their four-digit code to check out.

Debit Cards and Cashless ATM

A relatively new concept in cannabis payment processing is the cashless ATM or debit card processing. This option functions similarly to traditional ATMs, where a customer inserts a debit card and enters their personal identification number (PIN).?

However, instead of giving out cash, the cashless ATM is entirely electronic, providing proof that the cash has been debited from the customers’ bank account and deposited into your business account.?

There are different forms of cashless ATM; some happen outside of the POS (non-integrated), and some happen within the point of sale checkout process (integrated), but both are PIN-based.

This process — especially when it’s integrated with your point of sale — feels like a traditional debit card transaction for customers and streamlines checkout for dispensaries.?

Debit card transactions have emerged as the most stable option for cannabis businesses because it’s reliable, compliant, drives up sells (significantly), satisfies customers, and has the benefit of being a touch-less/cashless transaction under current COVID-19 protocols.?

Just having a debit option is a great step forward in cannabis payment processing, but as with any technology, there’s a chance of performance issues if the solution isn’t integrated with your cannabis POS.?

If you’re using a standalone, non-integrated reader, bud-tenders will need to key in the amount before the consumer runs their cards. This sounds simple, but the risk of human error is great. Miss-keyed totals leaves a manager battling to reconcile everything at the end of the day and may mean you’ve lost out on profits. The more employees you have and transactions they process, the greater chance of significant revenue loss - something to keep in mind.?

To maximize the value of a debit card solution, the system should integrate with your dispensary point of sale system, your inventory, and even compliance programs like Metrc.?

We’ll discuss more about the positive business impact of using a debit card solution for cannabis payments in a section below.

Crypto payments

I’m personally a huge fan and advocate of crypto currencies as their store of value and material usage for on demand liquidity are undeniable. Using crypto as a payment solution in your dispensary seems like a win: all digital, anonymous, and seemingly secure.?

Someday there will be a reliable, easy-to-use, and industry-wide crypto for cannabis. The truth is we’re far from that reality. A handful of stores have gotten this tech up and running, but report settlement issues and challenges due to the price volatility of Crypto in current state.?

It’s a lot to ask for customers to download something, put their money in there, and trust that it’s above-board. In addition, there’s little to no support or recourse when something goes wrong.?

While trust in digital currencies is growing, it’s simply too early to rely on crypto as a primary cannabis payment solution.?

Credit cards

Obviously, dispensaries want to offer Credit cards and consumers just about demand using them. Paying by card is easy for the customer to understand since that’s such a common payment option.?

In fact, 83% of Americans between 30 and 49 years old own a credit card. 70% of consumers prefer card payments (either debit or credit) over cash and only 10% make all their purchases with cash. It’s obvious why dispensary owners are desperate to accept cards.

Unfortunately, you cannot currently can’t take credit card payments. The unfortunate fact is that the federal-level illegality of cannabis prevents any credit payment processor, like Visa, Mastercard, or AMEX, from knowingly participating with any marijuana businesses.?

This means you simply cannot accept credit cards. Credit card processors won’t work with cannabis businesses. Period. The federal stance on cannabis will need to change dramatically before credit card companies recognize us as a valid, legal form of business. Bring on legalization!

Some retailers take a risk and accept credit cards as a workaround because they are so desperate to accept other forms of payments. Though it’s tempting to accept credit cards, even as a stop-gap measure, it could be a business-ending mistake. We’ll go into more detail on the risk of credit card processing in cannabis in the next section.?

Moral of the Story: Cashless ATM/Debit wins in the current state.?

The best current option for cannabis payment processing is integrated cashless ATM or debit solution. As of now, it’s the safest, most reliable, and consumer-friendly solution for seamless fast and easy payments. Did you know that 46% of Americans use their Debit Card for everyday purchases?

Consumers want an easy way to pay and dispensaries want to be able to accept multiple forms of payment, including cashless options. This solution is a win-win, and it’s currently the only federally legal and compliant way to accept card payments at your dispensary.

The risk of traditional credit card processing in cannabis

The cannabis market in its current state has been likened to that of the wild west where anything goes. Perhaps you’ve considered using credit cards — an appealing option many will tell you is safe. We’re not trying to spread unnecessary fear, but you need to be aware of the risks.

You may be looking for payment solutions, even temporary gap options until federal legalization allows other options, but credit card processing at your dispensary puts your business in jeopardy, even as a short-term solution.

Here’s a scenario that continues to play out across the country: A dispensary starts accepting credit cards through traditional retail credit card processing avenues and experiences significant sales increases. A few weeks in, they get a knock on their door, or more likely, an email alert or phone call. In some cases, it’s the credit card company shutting down their merchant account. Seems harmless, but in doing that, they can also freeze all credit card payments processed the previous day (because they hadn’t yet been fully processed and transferred to the cannabis merchant account).?

Even if dispensaries are deemed essential in many states, credit card companies still won’t work with cannabis businesses or other industries they consider “high-risk.” To ensure you don’t take credit cards, they have built algorithms to flag transactions or merchants selling cannabis. They may not identify you immediately, but they will eventually.?

It’s not just the loss of the prior day's revenue and shutting down the merchant account that’s the problem, it’s that your merchant account will be blacklisted. Being in the industry the last 3 years, I’ve seen it happen over 10 times to retailer owners. Thinking ahead, this could mean that you aren’t allowed to accept credit cards even when the rest of the industry is.?

The risk of accepting credit cards isn’t limited to the credit card company. The state may also get involved; inquiring why your business is not compliant with their regulations. Sometimes, it’s both. Those weeks of missing income can easily end a young company, and running afoul of regulations can mean a lost license. Just like that, a dispensary could be out of business.?

One might ask: what’s the difference between credit cards and taking debit? Debit cards are allowed because it’s money that’s coming directly from a bank account, whereas a credit card is money taken on credit. Debit is allowed because it’s a direct transfer of actual money.

Learning Point: Establishing a long term strategy

While it’s tempting to turn to credit cards to make it easy, it’s worth doing it by the books from the beginning. The risk (shutdown, loss of profit, loss of license) is simply not worth the reward.

Shy away from short-term profits that jeopardize the long-term health of the business. Luckily cannabis software providers and legislators are hard at work to resolve this issue and solutions are coming.

Positive impact to debit card payments on cannabis related retail businesses:

There’s now more than 8,500 dispensaries across the U.S. As both consumers and entrepreneurs embrace cannabis, and more states become legal, that number will continue to increase.?

Just being a place that sells cannabis is no longer enough though — customers and patients have choices and high expectations. Dispensaries need to differentiate on customer experience, and that includes how easy it is to check out. Just a quick look at keywords on Google shows that consumers are actively looking for dispensaries near them that take cards. Having a debit card or e-commerce solution will instantly separate you from the competition.

But don’t think that creating a great customer experience makes everything more expensive. In fact, seamless payments done smartly will make your business run smoother. And even more importantly, it’ll make you more money almost immediately because customers aren’t limited by the cash they have in their pocket.?

With a cashless ATM or debit solution, customers are no longer limited by what’s in their wallet. All in all, it’s a better experience and customers are more likely to return. And for you, the retailer, enabling all these conveniences for the consumer also makes it easier to run your business.?

There's proof: Data from Fundera found that the average cash transaction (across all transactions and industries) is $22. However, the average non-cash (or card) transaction is $112. That’s a huge difference.

Specific to cannabis, the leading cannabis payment provider (by volume) found that consumers spend 30% more on average at dispensaries with debit card payment solutions or cashless ATM. After evaluating several technology solutions in cannabis - this is the number 1 way to increase revenue, instantly and easily.?

Similarly, a large Massachusetts dispensary, immediately saw a 27% increase in total sales when they started accepting debit cards in June 2019.?

“Consumers spend 30% more on average at dispensaries with debit card payment solutions or cashless ATM”

To maximize the positive business impact, look for an integrated solution. Integrated means that the transactions process within your cannabis point of sale software (rather than being a separate process where you manually key in the transaction amount).?

Integration reduces human error and automates the accounting, which cuts down on administrative work and manager reconciliation.

Learning Point #2: Details count

Customer experience is an important factor in the competitive landscape of cannabis dispensaries. Integrated debit/cashless ATM to your POS makes for the smoothest shopping experience and makes consumers more likely to give you even more of their business, more often.?

What's the future of cannabis payment processing hold?

It may seem like cannabis payment options are limited, because they are. However, the future of payments will be different. As legislative action on cannabis picks up around the United States, and government officials are talking about cannabis banking solutions, we think the tipping point is coming soon.?

Federal authorities are watching the scales tip and legislative easing around federal-level financial services for the cannabis industry is already on the table.?

Focus on:

SAFE Banking Act

This act would allow the major financial institutions to become fully involved in legal cannabis sales without fear of federal action or penalty. The bill has strong support in the House and was passed in September of 2019. It now faces an uphill battle in the Senate. However, the domino effect of state-level legalization will make a difference in the coming months/years. With the impact of COVID-19 and dispensaries getting “essential business” status, it appears the nationwide opinion on cannabis is changing. That could impact the SAFE Banking ACT going forward.

Reclassification of Schedule I status

The reclassification of cannabis’s Schedule I status has been a legal issue since 1972. The United Nations’ World Health Organization has already begun removing and rescheduling cannabis and cannabinoids, putting increased pressure on U.S. federal authorities to at least consider similar actions. The issue is fraught, but any movement here will have a huge significance for the marijuana industry across the country and unlock traditional banking services.

Learn more

280E

This specific section of federal tax code effectively prevents any cannabis seller or producer from ever claiming business expenses to reduce taxable income. Various cases have been tried around 280E, setting the precedent for certain company structures that avoid the disadvantages of this rule. The best way to deal with this is simple: find a great accountant who is familiar with the cannabis industry and has the experience you need. As cannabis becomes a more and more legitimized (not to mention extremely profitable) industry, it's predicted this specific rule will come under increasing scrutiny.

Regulations are changing

Things are changing, slowly but surely. In the meantime, navigating all these rules can be a huge headache, especially for someone new to the space or new to small business ownership. Lean on expertise and partners to help you build your business and give customers what they want without taking on unnecessary risks. If you’ve got a strong foundation, this evolution will be much easier for your business to take on.?

How to get started with cannabis debit card processing

Dispensary owners and managers are looking for ways to streamline business, grow profits, and satisfy customers. The answer is in cannabis payments, specifically cashless ATM or debit card processing.?

A debit system that is integrated into your POS, gives your consumer more options to spend more money with you and easily increase that average cart total. Make it paramount to evaluate and base your selection criteria on the following:

1.) Dual "banking rails" (transaction rails that payments are sent on) for capacity and redundancy. Very important as bank regulators set a cap on a payment providers relationship with the banking entity. Make this a priority.

2.) Integrated into your POS - Your accounting team will thank you with their ability to "settle" the revenue and books at the end of a retail day. You'll also experience faster transactions due to the automatic push of cart total to the terminal.

3) Leverage an experienced merchant provider. There are LOTS of merchant providers operating as "reseller" for larger companies with deeper resources. Go to the source and avoid the middle man.

For more info and to tap Josh's experience evaluating the cannatech payment landscape and technology space, email him:

[email protected]