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The cannabis industry has been developing at a rapid rate. Not even the COVID-19 pandemic could stop its growth. In fact, in 2020 the cannabis industry’s sales reached nearly $21.3 billion, which is an increase of 48% over 2019 sales of $14.4 billion according to BDSA.

Along with its sales growth, so are calls for legalization. Marijuana legalization gathered massive support and has seen some huge developments recently. In fact, there has been a recent push for federal legalization, with Republican lawmakers proposing a bill that would legalize marijuana federally in early May.

That being said, the legalities of the cannabis industry can be confusing. Whether it’s text message marketing, collecting customer data, or getting a business loan to start, you’ll almost certainly run into legal headaches. Largely because of these harsh laws and restrictions, the cannabis industry is still very behind in some areas, especially when it comes to cannabis payment processing.

The biggest problem when it comes to cannabis payment processing is banking and the inability to use credit or debit cards in transactions.

Every other industry has been taking big leaps in convenience and quick payments, whether it’s tap-to-pay, PayPal, or simple credit card payment, consumers are spoiled with convenience. But when it comes to the cannabis industry and cannabis merchants, payments aren’t nearly as convenient.

In this article, we’ll be talking about everything cannabis payment and marijuana payment solutions. We’ll start by looking at the main types of payment options being used in the cannabis industry. Then we’ll talk about why credit and debit card transactions can’t be processed. After this, we’ll talk about the benefits of cashless payment, the future of cashless payment in the cannabis industry, and last but not least, springbig’s payment solution: springpay.

Main cannabis payment methods

Cash

Cash is a time-tested method of payment that doesn’t require you to recruit the help of payment processing companies. Unless you’re at a self-checkout that doesn’t take cash, you can generally use cash anywhere and for anything, including to buy cannabis.

That being said, cash comes with its downsides, specifically when it comes to convenience for the customer and for the dispensary itself. On the customer side, in today’s world, many people no longer carry cash, which means if you’re a cash-only business, your customers will have to use an ATM to get cash. This is often seen as a hassle and can come with fees, which can deter customers from making purchases.

On top of this, customers using cash can only spend as much as they have cash in their pocket, which makes it much harder to upsell them because if they don’t have the cash, they simply can’t buy anything else.

On the dispensary side, cash is less convenient and less safe to accept than cashless payments. Collecting cash is susceptible to human error, and can slow the checkout process due to the fact you have to both count the money and give out the correct change. On top of this, cash payments make doing your books at the end of a business day much more difficult.

When it comes to safety, cash can pose a security risk. If you’ve got large amounts of cash circulating through your dispensary every day, then you’ll have thousands of dollars that you’ll have to keep safe both on-site and in transport. This not only costs money but also can make dispensaries targets for theft.

Despite all of this, cash is still seen by many as a viable option and preferred method of payment, so making sure you know how to manage your cash transactions is key.

Cashless ATM

The cashless ATM is an uncommon form of payment in other industries, but it has been gaining popularity in the cannabis industry.

Essentially, a cashless ATM functions as any other card reader, where customers insert their debit card and input their PIN. Instead of dispensing actual cash, the cashless ATM just allows for the transfer of cash from the customer’s account to the dispensary’s account.

While this sounds great, there is a drawback: You can only pay in increments of $5.

That being said, the cashless ATM solves a lot of issues for payment in the cannabis industry, and if integrated with your POS, can feel like regular debit card processing.

This is a much more convenient alternative to simply having an ATM machine in your store and only accepting cash, as ATMs can make the customer experience, specifically the checkout, feel clunky and separate.

ACH / bank transfers 

ACH (Automated Clearing House) payments or bank transfers are a good route to go for dispensaries that want to provide a cashless payment option for customers but do not have a cashless ATM.

Essentially, this allows money to be transferred directly from the customer’s account to the account of the dispensary.

The only drawback here is that this must be done with the help of a third party. With these, your customers will first have to register online or on the app, and then check-in at the dispensary through the app.

Given that this is integrated with your POS (which it should be) this can make for a relatively smooth checkout process as long as the customer is already registered beforehand.

Why traditional credit card and debit card processing is off-limits for the cannabis industry

Now that you’re familiar with the most popular cannabis payment options in the marijuana industry, it’s time to talk about why credit and debit card transactions can’t be processed in the traditional way by cannabis merchants.

In short, because of the fact that cannabis is illegal at the federal level, credit card processing companies like American Express, Visa, Mastercard as well as financial institutions like Bank of America and Wells Fargo cannot work with or handle the money of cannabis businesses, including medical marijuana dispensaries. This is also the reason that banks do not offer business loans to those looking to start a cannabis dispensary.

On top of this, large financial institutions and even other smaller payment processors and payment platform services for cannabis businesses classify businesses in the cannabis industry as high-risk businesses, which can make cannabis merchant accounts much more expensive (if you’re able to make one at all).

While debit cards and debit card payments are different than credit cards in the sense that you can only spend the money you have (not the bank’s money), debit card processing is still off-limits at cannabis businesses because they are processed by the same companies.

Why you shouldn’t try to accept them despite restrictions

Even with the restrictions, it can be tempting to just risk it and accept cards because after all, who’s going to know it’s a cannabis business?

While you might be able to get lucky for a while, the consequences of getting caught are not worth it. You might get away with debit and credit card processing for a while, but eventually, these card companies will find you with the algorithms they have in place to weed out cannabis businesses.

Not only that, but each financial institution and major credit card processor is required to file a SAR if, as stated within the FinCEN regulations, the financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution: (i) involves funds derived from illegal activity of is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the BSA, or (iii) lacks a business or apparent lawful purpose. Because marijuana is federally illegal, processing cannabis transactions is technically illegal.

Once you’re caught, your merchant account is frozen, also freezing the transactions from the previous day which means you could miss out on thousands of dollars. Not only that but you’ll be blacklisted, which means that eventually when dispensaries can accept card payments legally, your’s may not be able to. On top of all of this, the state may come knocking on your door due to your non-compliant behavior.

Because of all of this, debit and credit card processing is just not worth it. Stick to legal methods.

The best bet for cannabis businesses

After everything we’ve discussed, the best card-processing solution or cashless payment option for cannabis merchants is either the cashless ATM or ACH bank transfers. 

While both of these have their drawbacks (discussed above), they are relatively simple, provide a relatively smooth customer experience, and can offer a safe, compliant solution for your cannabis business until it is legal to accept cards in the traditional way.

Benefits of cashless payments for cannabis companies 

83% of Americans between 30 and 49 have a credit card according to a recent study by Statista. Not only that, but another recent study found that 70% of customers prefer to make payments with card rather than cash.

That means, that at least 7 out of every 10 customers that come in on average will not only have a card, but they’ll be wanting to pay with it. If you’re unable to accept card in any way, then you may lose a potential customer which especially for smaller dispensaries can be detrimental.

Not only that, but let’s say that a customer comes in planning to pay with their card, but also has some cash. If you’re unable to accept card, the customer can only spend as much as they have in their pocket. This can cost you hundreds if not thousands daily. According to recent studies, the average cash transaction (across all transactions and industries) is $22. However, the average non-cash (or card) transaction is $112. That’s a $90 difference per transaction!

Another important reason you’ll want to be able to offer your customers a cashless payment method is because of the rising popularity of eCommerce. Over the course of the COVID-19 pandemic, the popularity of cannabis eCommerce skyrocketed as restrictions loosened. Seeing as eCommerce happens online, being a cash-only business would have its drawbacks here clearly.

Besides allowing you to make more from each transaction, allow for easy checkout on eCommerce sites, and tailor to your customers’ preferences, cashless payment is also much easier to handle and track. With cashless payment, your books are essentially done for you, and transaction time is sped up, which means faster overall cash flow and the ability to handle more customers.

The future of cashless payment in the cannabis industry

Now that we’ve discussed the different types of cannabis payments and the benefits of cashless payment, it’s time to talk about the future of cashless payment in the cannabis industry.

In short, the future of cashless payment in the cannabis industry will depend on how fast the laws regulating the legality and sale of cannabis and change. As laws and regulations begin to loosen, it will be more likely that a cannabis retail business will be able to accept card legally.

What would really help the push would be the federal legalization of cannabis, which would almost surely clear up and issues card companies had in dealing with marijuana businesses.

That being said, there are four main actions and pieces of legislation that you’ll want to pay attention to:

SAFE Banking act

This act would allow for large financial institutions, such as major banks and card companies, to become fully involved with legal cannabis businesses without fear of punishment. This bill passed the house in 2019, and with a more liberal senate in 2021, this act has a good chance of being passed

Federal reclassification 

Cannabis has long since been classified as a schedule 1 drug by the federal government. This classification puts it up with other, much more dangerous drugs. If this classification were to be lifted, this would be a huge step for the cannabis industry.

Federal legalization

Recently, Republicans proposed a marijuana legalization bill that laid out the groundwork for what would look like a fully legal cannabis marketing across the entire United States. This is an extremely progressive bill and has the chance to go far in both the house and senate.

280E

This section of the federal tax code prevents any cannabis seller or producer from ever claiming business expenses to reduce taxable income. This specific code has been tried multiple times and is likely to be shot down as the cannabis industry legitimizes in the United States.

Springbig’s cannabis payment solution: Springpay

Like most things in the cannabis industry, marijuana payment processing is complicated. With multiple different possible forms of payment and restrictions making everyone’s life hard, payment can be a headache. Even with existing payment processing solutions in the cannabis industry, payment can feel clunky and complicated.

Here at springbig, we’ve been working hard to make paying for cannabis easier for both our clients and our client’s customers. In this, we’ve developed a complete solution: Springpay.

Springpay will live inside the customer’s loyalty wallet and allow for straight ACH transactions. This means the transactions will be just as fast if not faster than if they were paying with a card traditionally.

In doing this, springpay gives customers a QR code that is linked to their bank account that when paying, is scanned by the budtender and taken out via ACH. These mobile payments will be fast, efficient, and will only require a one-time quick set-up process by the customer.

Look for more information on our payment processing service springpay coming soon!

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