The cannabis industry was dealt a heavy blow with the sudden loss of access to cashless debit and credit processing. Now as cannabis businesses around the country struggle to find safe solutions to process sales, the industry is actively trying to avoid regressing back to all-cash businesses.
While adversity is nothing new for marijuana businesses, the perceived progress and the overwhelming support for legalization around the country make the move seem counterintuitive and it comes at a most inopportune time, as both Maryland and Missouri legalized adult use marijuana last month. Additionally, new research shows that an overwhelming number of American adults (88%) support the legalization of medical marijuana, with 59% of those surveyed saying they are in favor of legalization of both medical and recreational marijuana.
In Missouri, the cannabis industry has become the biggest source of new job creation and has brought in over half a billion dollars in revenue in just over two years of retail sales. Combined adult use and medical sales are expected to surpass $500 million in revenue in 2023 alone.
Greenway spoke to Brian Bauer, Chief Revenue Officer of Safe Harbor, about the downfall of cashless banking options for the cannabis industry.
“The root cause (of the problem with the companies affected by the shutdown) is pressure from the major card networks on payment ecosystem banks and processors to eliminate cannabis transaction volume on their networks,” Bauer explained. “There is always a risk of instability in the cannabis industry when it comes to financial services. Sometimes even banks providing deposit services shut their programs down due to compliance challenges. The payments ecosystem is even more complex and involves several entities to process a transaction. Any of these entities can be the source of a shutdown.”

Can you detail some of the differences in what varying service providers are offering? 

“The major payment offerings that are commonly found on the market are Cashless ATM (aka ‘point of banking’), Pin Debit, and also there are ACH-based wallet applications,” Bauer said. “Cashless ATMs have been impacted by widespread shutdowns. These are routed over networks as ATM transactions and this is why they have likely been the subject of the shutdown. Last December Visa issued a memo to inform providers that Visa disfavors this type of transaction over their networks. This year’s shutdown is likely a continuation of that effort.”

What advice or information would you give industry participants and Greenway readers?

“Cannabis businesses are used to mitigating all kinds of risks in their operations. Having a variety of payment options, like an ATM in the lobby to support cash payment plus a compliant electronic payment method, will help you manage the impact when it comes to the risk of some kind of service interruption. If you have a good partner, they can probably guide you to a replacement solution that will help you get back up and running quickly,” Bauer told us. “In addition, look closely at the terms of your contracts with payment providers. Sometimes you find restrictions that penalize businesses for switching providers. This has been a common tactic utilized by less reputable providers and could restrict your options down the road.”

“Also, be on the lookout for consumer complaints at your business regarding their payments. If your consumers are complaining about transactions in their banking records that don’t reflect accurate information about their purchase (such as the location), this is an indication of misrepresentation by your payments provider and it might be time to switch. “

In addition to current operators, Missouri will be bringing on hundreds of microbusiness licensees in the coming months, what should those operators be aware of and be looking for in a partner to process their payments?

“Plan to have a mix of payment options available to your customers. The right strategy is diversification and redundancy. Have an ATM in the lobby to support cash payments and a compliant payment option at the point of sale. If you are working with a bank that is unable to guide you, then you might need to look for a better partner who can help you navigate the complexities of cannabis financial services,” Bauer explained.

What is the solution to ensuring compliance and maintaining a company’s ability to conduct business in an effective manner?

“The real solution is federal legalization or, at least, SAFE Banking Act. Until federal reform occurs, instability in financial services will continue to impact cannabis businesses. I would advise cannabis businesses to work with a reputable financial services partner that is an industry expert to help guide them and help them implement the most compliant and reliable strategy possible.”

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