Dispensary tips

Seeing green: the evolution of cannabis banking and payments for dispensaries

May 9, 2022

For the cannabis industry, seeing cashless payment solutions on the horizon is a game-changer. Finding a compliant, dependable payment source (for both businesses and consumers) is one of the biggest remaining barriers to normalizing the cannabis retail experience. As a result of the current status of federal legalization in the US and corresponding positions by financial institutions, the limited availability of “standard” financial services has created a void within the industry. Regardless of size, all retailers—from multi-state operators (MSOs) to boutique shops—want to see a trackable, sustainable solution.

Let’s jump into the current banking and payment challenges, along with the evolution of payment solutions to come in this current cash-heavy market.

Current banking and payment challenges in cannabis

Since cannabis isn’t federally legal in the US, major card brands and federal banking institutions have imposed strict limitations on the cannabis industry that makes finding a reliable financial service a nuanced challenge. Dispensaries desperately need merchant accounts to process transactions, but major credit card networks have made it clear that they don’t support them.

As How The Cannabis Industry is Pushing The Limits of Digital Payments explains:

“One of the downsides of the stringent regulatory codes is that many financial entities (e.g., banks) feel that there is too much compliance risk in the cannabis market right now. Legal [cannabis] businesses, whether a local dispensary or distributor, are subsequently locked out of many financial avenues that other businesses are not precluded from. The problem of underbanked cannabis companies is well-established and has created a legitimate issue in how payments are processed, and cash-flows are managed.”

A high-cash business may sound nice and liquid, but it’s created a bottleneck in the emerging and quickly growing cannabis market. That amount of cabbage moving in and out of the registers means more risk for retailers. It’s also hard to prevent any minor mistakes coming from the hands of the staff, which can lead to mismatched reconciliations and reporting.

The cannabis payments evolution is underway

While still not as accessible as it should be, an increasing number of banks are beginning to support the industry, with more mature cannabis banks extending their services. According to an article published in July 2021 by Marijuana Moment, “As of March 31, there were 684 banks and credit unions that filed reports saying they were working with cannabis clients.”

Larger merchant acquirers are beginning to actively engage dispensaries and partner with fintech companies in Canada where cannabis is federally legal hinting at what could be on the horizon. The issues are summed up in Fintech Solutions and Cannabis Banking: What Works and What Doesn’t?:

“Fintech companies have emerged as a source of workarounds for bans on cannabis payment processing or banking services. Unfortunately, most have failed to become established, sustainable services that can stand the test of time, either due to regulatory considerations, lack of adoption, or the card networks themselves. When considering fintech for cannabis payments, it’s important to learn from what didn’t work to determine what could fill the payment processing needs of cannabis businesses nationwide.”

With these blocks from major card networks themselves, digital advances seem the most promising. Still, building an entire technological payment matrix infrastructure for cannabis businesses is an incredibly complex task. 

The legal Canadian market, on the other hand, is mostly free of these issues. Canada-based retailers aren’t only allowed to accept traditional card payments for purchases, they can also acquire other banking resources they might need. The one obstacle they do face? Varying card network fees, which make it difficult to forecast financial performance. Otherwise, Canadian cannabis retailers are able to navigate internal business banking as any retailer would—a promising sign for the US, as well.

Cannabis legislation and the future of payments

Cannabis legislation is constantly in flux. Legalization efforts accelerated during the height of COVID-19, when dispensaries were deemed “essential” across North America. How ‘essential’ transformed the US cannabis industry amid the COVID-19 pandemic explains how that single word created an increase in consumption and fueled the process of legal reform:

“By casting [cannabis] as “essential,” states put the cannabis industry in the same category as pharmacies, hospitals, and other sources of legitimate medicine. In short, cannabis went from an alternative treatment to essential medicine, giving it a major upgrade in credibility. State regulators and health experts sanctioned that upgrade.”

This led to opening the minds of consumers and recent political movements that are pro-cannabis, like the SAFE (Secure and Fair Enforcement) Banking Act.

The SAFE Banking Act of 2021: what you should know

As the cannabis industry continues to mature, so do the economic benefits. As the broader fintech world watches progress in Washington, DC, change is occurring for financial services in the cannabis industry.

The SAFE Banking Act of 2021 allows banks to  work with legitimate, state-licensed cannabis businesses. It also excludes transactions from the legal cannabis market from the definition of  “unlawful activity.”

This bill, which has passed the House, would open up a bevy of possibilities for the cannabis industry, increase the volume of online and in-store sales, and help reduce the prohibition limitations on natural plant remedies.

There’s no doubt that it would benefit the economy, too. Further regulating the industry would create the necessary checks and balances required to make cannabis accessibility safer (and bring in much needed state tax revenue).

Today, cannabis ecommerce has a key limitation—cash can’t be collected online. However, with the passing of SAFE, ecommerce providers will be able to accept common card types. This will also open the door for other types of digital payments and wallets. Online cannabis shops are leading the way in innovative experiences by meeting consumers’ expectations for digital purchasing.

Transparency is key to compliant banking

Large banking networks adhere to strict rules against working with cannabis businesses, which makes finding a trustworthy financial partner a challenge for dispensaries.

Bank and credit union audits for cannabis-related businesses involve a thorough review of federal, state, and local regulations. 

And it’s not just the challenge of securing a banking partner. Working in all cash can cause other compliance issues within your shop. For example, untraced cash-handling practices can lead to inventory issues. 

Rest assured, compliant financial options are within the landscape of possibility. A transparent business relationship with payment products and supplies is emerging in this growing industry.

Understanding the consumer experience

Consumers don’t want to jump through hoops to have to buy their favorite cannabis products. Stopping for cash at a bank or ATM adds precious time that could otherwise be spent shopping or unwinding from a long day. Most consumers also want to be able to check their bank or card statements and verify past purchases. For medical patients, it can be difficult to establish tax write-offs on their medicine if they can’t easily trace their spending.

If consumers are offered the option of using more convenient cash-free payment solutions, it’ll most likely open your business up to a larger customer base—and larger average cart sizes. The future transition between payment solutions will be easier if your business is already on a pro-banking path. Being prepared for these changes in the cannabis space will also make the transition smoother for consumers.

Current cannabis payment methods and their problems:

  • Cash/ATM: As we’ve mentioned, cash leads to security and other risks.
  • Credit cards: The concept of putting cannabis on credit doesn’t exist in the US today. Major credit card companies only participate with retailers in Canada.
  • ATM: A classic ATM was the norm for a while in US dispensaries. But owning one means extra maintenance for you (and unnecessary fees for your customers).
  • Cashless ATM: A cashless ATM is simply a terminal that allows you to run an ATM card for a certain amount, debiting directly from a customer’s bank account, usually for a standard ATM fee. Rather than having a large ATM machine that may attract unwanted attention at your store, you could use a mobile terminal that doesn’t require replacing large quantities of cash. 
  • Digital payments (routed with ACH): Ding, ding, ding! This is the winner. Electronic bank-to-bank payment systems connect a shopper’s bank account digitally in seconds. Digital payments make it easier on your internal reporting—especially when they’re integrated with your other dispensary tech.

Bank-to-bank transfers may offer the most hope in the form of digital payments. If you receive your paycheck as a direct deposit, that’s a bank-to-bank, Automated Clearing House payment (ACH). Some POS systems are creating their own internal ACH payments to navigate the indirect payment landscape. For cannabis, the ACH securely connects your dispensary’s bank account to your customers’ bank account. 

Dutchie’s integrated payments solutions

Dutchie Pay is coming soon!

As attitudes shift more and more each day, Dutchie is thrilled to help prepare US dispensaries to accept digital payments.

Our digital payments solution, Dutchie Pay, can lead to faster checkouts, larger purchases, more productive staff, and returning customers. Shoppers can now choose how they pay—with curbside, delivery, and pay ahead options. Join the waitlist today!

We’re here to make Canadian cannabis retailers’ lives easier, too. Our integrated payments solution enables in-store credit card processing equipped with our dedicated payments team and predictable pricing. With two different pricing models, Canadian retailers can process payments with Dutchie. They can also easily plan their finances and perform reconciliations and regulatory reporting.

Contact us for a demo on Dutchie Pay today.

About the author
The Dutchie Squad