May 9, 2022

The evolution of cannabis banking and payments in the U.S.

May 9, 2022

For the cannabis industry, seeing cashless payments 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 โ€œstandardโ€ financial services has created a void within the industry. Regardless of size, all retailersโ€”from multi-state operators (MSOs) to boutique shopsโ€”want to see a trackable, sustainable solution.

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

Cannabis banking and payment challenges today

Since cannabis isnโ€™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 donโ€™t support them.

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

โ€œOne 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.โ€

A high-cash business may sound nice and liquid, but itโ€™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. Itโ€™s also hard to prevent any minor mistakes coming from the hands of the staff, which can lead to mismatched reconciliations and reporting.

Understanding the consumer experience

Consumers donโ€™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 canโ€™t easily trace their spending.

If consumers are offered the option of using more convenient and secure payments, itโ€™ll most likely open your business up to a larger customer baseโ€”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.

Cannabis payment methods available today

  • Cash/ATM: As weโ€™ve mentioned, cash leads to security and other risks.
  • PINย debit. A Personal Identification Number (PIN) debit transaction is an electronic funds transfer from a customerโ€™s bank account to the dispensaryโ€™s bank account. PIN debit transactions are initiated when a customer inserts their debit card into a card reader and then enters a four digit PIN to verify authorization of the sale. Learn more about PIN debit for cannabis dispensaries.
  • Digital payments (routed with ACH): Electronic bank-to-bank payment systems connect a shopperโ€™s bank account digitally in seconds. Digital payments make it easier on your internal reportingโ€”especially when theyโ€™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, thatโ€™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 dispensaryโ€™s bank account to your customersโ€™ bank account.ย 

Future-proof your dispensary with integrated digital payments from Dutchie

Dutchie Pay is a fully-integrated digital payment solution that both dispensaries and consumers can trust. Using a closed-loop automatic clearing house (ACH) solution, Dutchie Pay allows consumers to purchase their favorite cannabis products while automating compliance so that dispensaries can focus on growing their business.

Oh, and did we mention that over 70% of shoppers who use Dutchie Pay at a dispensary return to that dispensary within 90 days?

Let's grow together. Contact us today to learn more.

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The Dutchie Squad