Digital cannabis paymentsMost marijuana businesses still lack access to financial services. The repeating story can sound like a broken record, but that is because it bears repeating. Congress would be acting in everyone’s best interests if it finally decided to protect financial institutions and allow them to provide financial services to marijuana businesses without risk of federal prosecution. Even people like Jeff Sessions who prefer the marijuana black market to a legal, regulated market cannot come up with coherent arguments as to how anything is helped by having state-regulated businesses unable to open bank accounts.

Instead of hoping that its financial institutions take the risk of jumping into the cannabis market, Hawaii has pushed forward with a different solution. On September 12, Hawaii Governor David Ige announced that Hawaii dispensaries would run all transactions through an application called CanPay. CanPay will work like many other mobile payment systems inside and outside the marijuana industry. Customers sign up and connect their bank account with the CanPay app, and they then use the app to make mobile payments at a Hawaii cannabis dispensary.

Though CanPay will run the payments, it will not provide direct banking services. A program like CanPay can work as a money transmitter, but mobile solutions do not work well in providing the global payment services businesses need — payments to contractors, employees, vendors, service accounts, government tax agencies, etc. Instead of relying on local banks, Hawaii’s marijuana dispensaries will begin using Partner Colorado Credit Union through its branded division called Safe Harbor Private Banking.

Some general comments first. Hawaii’s small size provides it the opportunity to attempt this one size fits all approach. Only two cannabis dispensaries have opened and are operating in the state, with six more in different stages of development. A state the size of California cannot involve itself so directly in the financial planning of its various licensed marijuana businesses. And it makes complete sense that Safe Harbor Private Banking would insist that Hawaii adopt some sort of cashless payment system. Publicly available information doesn’t clarify whether there exists any financial connection between CanPay and SafeHarbor, but even if they are completely separate, Hawaii’s unique circumstance would necessitate a cashless solution. Credit unions in Oregon and in Washington State are largely limited by their cash pickup network. Because traditional credit and debit networks still spurn marijuana customers, even cannabis businesses that have banking tend to take the majority of their payments in cash. Their financial institutions set up regular cash pickups and armored cars deliver that cash to a vault the financial institution controls. A credit union based out of Colorado likely does not maintain a branch or even a cash holding facility in Hawaii — hence the need for cashless payments.

But this system still carries significant risks. Most of the Hawaii customers that use CanPay to make payments for their cannabis will have local bank accounts in Hawaii. If those Hawaii banks see many of their customers having money automatically pulled into a CanPay account, they will know those payments are connected to buying marijuana. If those Hawaii banks disfavor marijuana or choose to defer to federal law, they could threaten their banking customers’ with account shutdowns for making payments to CanPay. CanPay could also face problems with its own accounts. Mobile payment systems work through a type of escrow account where the money goes from a customer to CanPay, CanPay removes its fee and then deposits the funds into the merchant account as quickly as possible. CanPay needs its own banking access for the system to work. If CanPay’s bank gets cold feet, the whole payment system could collapse.

Despite these risks and despite the concerns we always have in monopoly situations where there isn’t competition in markets (both payment solutions and banking services in the present case), something is better than nothing. Hawaii faces some unique risks, but its size allows it to take bold, direct actions that simply aren’t feasible in most other states. We should applaud Hawaii’s government for helping facilitate solutions to the cannabis banking problem. We’ll know things are going well there if local Hawaii banks and credit unions start getting involved in the market and challenge the role that a mainland credit union is playing in Hawaii.