The U.S. cannabis industry has come a long way since California first legalized medical marijuana in 1996. Twenty-nine states and Puerto Rico have since followed suit, nine states and the District of Columbia now allow for the adult-use of marijuana, and even more states are planning to legalize and decriminalize cannabis in some capacity in the years to come. Generating an estimated $25 billion by 2025, it’s one of the largest and fastest-growing industries today.
Despite incredible industry growth in the last two decades, cannabis businesses are just now starting to see improvements in their day-to-day business operations, specifically when it comes to payments. Still a schedule-one narcotic, federally insured banks have largely avoided partnering with cannabis businesses, which means many retailers have had no choice but to run cash-only operations – until now. Compliant banking solutions do exist, albeit on a limited scale, and with more market expansion on the horizon, widespread adoption of these solutions has never been more important to meet the industry’s evolving needs.
An industry still too dependent on cash
Running a multi-billion dollar industry on cash alone isn’t just unsafe, it’s wildly unstable. Cash is burdensome to keep track of and can be easily stolen, miscounted or lost – creating an enormous problem for businesses in legalized states that are trying to sell regulated cannabis to patients and recreational consumers.
That’s why cannabis retailers are working to institute more stable and safe payment options that not only reduce cash on hand but also empower employees and consumers to participate in a safer cannabis marketplace. Solutions that convert cash transactions to electronic transactions will help to remove cash from the system and also offer a quicker and more familiar way for consumers to pay for their purchases.
Lack of transparency in existing payments tools
While some companies have made progress in instituting electronic payments solutions that circumvent the industry’s historic banking issues, many miss the mark when it comes to transparency and true convenience for the customer.
When the West Coast market started growing quickly a few years ago, the U.S. cannabis industry was still in its infancy, operating more or less without a traditional business model. With hesitation from federal banks and an abundance of regulatory pressures to abide by, many early retailers were pushed into using less-than-legitimate payments solutions. But as more and more cannabis retailers, especially in emerging markets along the East Coast, enter the market with greater demands on transparency than their more established counterparts-they want to run their businesses just like any other industry – they are choosing services that help normalize day-to-day operations for employees and customers.
This new wave of cannabis business sees stable and transparent payments as a critical point of differtiation from their competitors and as customer service tool. Rather than choosing exotic payment services that include credit card-for-crypotcurrency schemes, overseas banking, secret merchant accounts, doing business in someone else’s name, cash-back electronic ATMs, or a bevy of other similar solutions that are subject to shutdown when discovered, these operators are choosing to do business in their own name, with bank approved services, and without extra fees charged to their own patients and customers. The largest and longest operating service available to these top operators that meets this criteria is CanPay, which launched with its first dispensary in Colorado in 2016 and now serve cannabis dispensaries in more than 14 states.
Markets comprised of mostly single-state operators
Mergers and acquisitions in the North American cannabis market nearly doubled in the first part of 2018, a validating statistic for a young industry, but the U.S. cannabis market is still mostly comprised of a high volume of single-state operators. Cannabis firms that can’t conduct business across state lines have no need to institute interstate banking solutions that make it easier to run cashless businesses.
As retailers look to grow and fend off larger competition, consolidation will be a key part of their growth strategies. Transparent, reliable banking services that can be used across markets will help empower these businesses to meet consumers’ changing cannabis needs despite evolving regulatory, state and legal frameworks.
The time for change is now
Providing banking services to cannabis retailers is still a risky business, but much progress has been made in the last few years to bring better payments solutions to the forefront. By continuing to focus on easing the risk for consumers and industry employees through the deployment of legitimate payment solutions, we will not only solve the cash-based issues facing the industry today, but also finally normalize an industry that has previously been associated with unclear business practices.
The next few years will be hugely important in bringing more validity to the cannabis industry as it contninues to expand into new legalized markets. Tapping into the compliant payments solutions will ensure that cannabis dispensaries and retailers will operate above reproach, something their customer/patients, employees, banking partners, and state regulators will appreciate.