We have written a ton on cannabis banking issues and on the many problems that stem from the industry’s a lack of access to banking. Even when a marijuana business does have banking, it can face additional problems. One of those is that it can be challenging to find merchant services companies that do payment processing. This means that even though a marijuana retailer may have a bank account, it may not have a way to accept debit or credit card payments. This is inconvenient for customers and brings with it the risks that come from having large amounts of cash on site.
There are several alternatives. One is to have an ATM on site or to use a “cashless” ATM system at the point of sale. Under these models, the merchant services provider puts a terminal at the point of sale at which a customer swipes his or her debit card. The customer approves the transaction and the payment processor pulls the transaction amount from the customer’s account. The money then sits in the payment processor’s account briefly, before it is deposited in the marijuana retailer’s account (less a hefty transaction fee, of course).
Another alternative emerging is for customers to load dollars into a payment account that they keep specifically for the marijuana retailer(s) from whom they buy their cannabis. PayQwick is an example of this method. Using this method, customers load money into an account, and then make payments using either a PayQwick card or a phone app. The idea is similar to what other payment processing businesses like PayPal and Google Wallet offer. In practice, the payments look similar to what you see in a Starbucks, with people paying via scanned barcodes on their smartphones.
All of these services solve some of the problems that arise from running a cash only business, but they have seen their own share of challenges. One of the primary issues faced by these companies is that they have to maintain a good relationship with their own financial institutions. Most of the small banks and credit unions currently offering financial services to the marijuana industry are not set up to take on the business of a payment processing company. This means that these payment processing companies end up doing business with the same large national banks that refuse to offer financial services to the cannabis industry. Needless to say, this presents some risk that the payment service will have its own accounts closed. My law firm has worked on a number of cases where banks stopped paying payment processors and the customers of those payment processors in turn miss getting paid as well.
Additionally, there is state licensing. Money transmitters, like many other financial services, are regulated and licensed on a state by state basis and it’s important for marijuana businesses and the banks that serve them to constantly do their due diligence on thid party service providers to verify their compliance with state law requirements.
None of these alternative payment services are a real alternative to banking. Similar to bitcoin, they can provide additional convenience and can solve a number of problems that industry members face, but they don’t benefit from the deposit insurance and regulatory oversight of banks and credit unions. Still, they are welcome entrants in the market, and we look forward to seeing what other innovations this industry will provide in the coming years.