The legal cannabis industry has experienced immense growth in recent years, as an increasing number of states opt to decriminalize or legalize cannabis. But due to federal regulation, banks are largely unwilling to work with cannabis companies, leaving them underbanked. Companies with banking access still face challenges revolving around payments, as brand name card networks won’t work with them.
There are some emerging solutions from innovative companies that are involved in the legal cannabis space. Even so, the highly regulated nature of the industry and associated payments challenges makes it critical for financial institutions, payments companies, and cannabis companies to remain informed of ongoing regulations.
The Legal Cannabis Market is Experiencing Rapid Growth
Total legal cannabis sales are anticipated to reach nearly $30 billion by 2025.
New Frontier Data
The legal cannabis industry is booming in the United States. While cannabis is still illegal on a federal level, laws and regulations regarding cannabis vary widely across states. Cannabis is still fully illegal in eight U.S. states, but the remaining 42 have either decriminalized cannabis, legalized it for medical use, or legalized it fully including recreational use. As time passes, states will likely ease restrictions even further and become more involved in the industry.
New Frontier Data’s 2019 cannabis industry outlook found that total legal cannabis sales are anticipated to reach nearly $30 billion by 2025. Further, the jobs of over 300,000 people in the U.S. directly depend on the cannabis industry. Yet despite the thriving industry, federal regulations pose challenges.
Financial Institutions are Largely Unwilling to Work with Cannabis Companies
Some agile small banks and credit unions are willing to take the risk to work with the cannabis industry, but a vast majority of financial institutions are unwilling to enter the space. Large financial institutions in particular have too much at stake to risk getting involved, as federally regulated financial institutions could be penalized for working with cannabis companies due to the Controlled Substance Act.
This reluctance to become involved in the industry is unlikely to diminish until there is a change at the federal level, such as the passage of the Secure and Fair Enforcement (SAFE) Banking Act, which would eliminate the possibility of repercussions for banks doing business with cannabis companies, or the removal of cannabis from the Controlled Substances Act.
Cannabis companies with bank accounts face their own hurdles: “these accounts cost more than a traditional business account and require more due diligence to obtain because of the risk and added compliance processes that banks have to take on in managing these accounts,” explained Joshua Radbod, Co-Founder and CEO of The Avantpay Conference.
Even with Banking Access, Cannabis Companies Face Payments Challenges
Cannabis businesses are “increasingly targeted by criminals due to the vast amounts of cash they handle.”
American Bankers Association
Many cannabis operators do gain access to banking, but this doesn’t solve the challenges associated with payments. Brand name card networks like Visa and Mastercard won’t work with the cannabis industry until there is a change at the federal level, forcing many operators to accept cash-only from customers and use cash to pay vendors, fees, and taxes.
There are issues associated with cash-only payments. According to the American Bankers Association (ABA), cannabis businesses are “increasingly targeted by criminals due to the vast amounts of cash they handle.” On top of that, paying taxes and fees in cash are costly, inefficient, and insecure for both businesses and collectors.
Cash-only is inconvenient for customers too, who prefer having access to card and electronic payment options. 70% of consumers prefer spending with a card over cash.
Innovative Fintechs Are Offering Cannabis Payments Solutions
With big banks and card networks out of the picture for now, innovative fintechs have stepped forward to help cannabis companies with both payments and compliance. Here are just some of the areas in which fintech providers are offering solutions to help cannabis companies:
- ACH/e-Check solutions
- ATM solutions
- Bank to bank transfers
- Cryptocurrency solutions
- Point of sale systems
- Seed-to-sale tracking
- Taxation and other compliance solutions
Staying Informed of Evolving Regulations and Legislation is Key
Cannabis is a highly regulated industry with evolving regulations and legislation at local, state, and federal levels. Payments companies, financial institutions, and cannabis companies alike need to stay up to date with these ever-changing rules to ensure that they are compliant with these rules—or risk repercussions if they aren’t.
With these challenges in mind, The Avantpay Conference was founded in 2018 as the B2B conference for payments, banking, and compliance in the cannabis industry. By bringing the key stakeholders from the private sector–cannabis operators, financial institutions, payments companies, and more–together with the public sector–legislators and regulators–companies that attend the conference can learn the rules they need to comply with and find the solutions they need to scale their business.
Recently approved for 6 CAMS credits by the Association of Certified Anti-Money Laundering Specialists (ACAMS), conference attendees can earn and use these credits toward their required continued learning education for their CAMS certification in the banking and payments industries.
