Cannabis is easier to buy (and sell) than ever. Or is it? Dispensaries have come to rely on cashless ATMs to bypass limitations on the types of sales payment cards they can legally accept. These “point of banking” systems enable buyers to use a bank card instead of cash and purchases appear like ATM withdrawals coming from various other addresses (as a McDonald’s in Great Barrington, Mass. discovered).
The solution stems from the biggest problem of the cannabis industry – being illegal under federal law, financial institutions don’t want anything to do with it, which means cannabis businesses are more often than not denied access to standard banking and merchant services.
There has been hope that the so-called SAFE Banking Act, aimed at protecting financial institutions that provide services to legal cannabis businesses, would put pot shops on the same playing field with mainstream merchants. Unfortunately, the legislation again failed to make the cut, this time being excluded as part of the Senate version of the 2023 defense spending bill.
Now, some of the biggest processors of ATM transactions, such as NCR’s Columbus Data Services, are running scared and have cut off their services according to a recent report by Bloomberg News.
The move comes almost a year after one of the largest payment processors in the world, Visa, issued a stern warning to customers that incorrectly coding point-of-sale transactions via cashless ATMs could be penalized or punished by unspecified enforcement procedures.
Visa’s memo noted that cashless ATMs, which are sometimes called reverse ATMs, “are primarily marketed to merchant types that are unable to obtain payment services—whether due to the Visa Rules, the rules of other networks, or legal or regulatory prohibitions,” a category that includes cannabis businesses.
On the other hand, who needs Visa?
Going back to cash-only sales is a workable, yet risky and inconvenient, option. Closed loop transactions, which allow consumers to pre-load funds into a spending account that is linked to the payment device (such as a wristband or card), may be another path forward until cannabis is federally legal.
From a merchant perspective, closed loop payments systems offer the following advantages:
- Internal payment processing which can lower merchant costs.
- Ability to capture big data on customer transactions, including customer insights, buying habits, popular items, and even return on mobile marketing campaigns.
- Increase in customer loyalty through integration of loyalty programs within the application.
Benefits from the customer perspective including purchase/loyalty incentives, pre-ordering and balance top-up ability and faster check-out time.
Some of the largest payment providers in cannabis have aggressively taken up the charge (no pun intended), launching alternative payment methods that are alternatives to cashless ATMs. CanPay, Hypur, Aeropay, and Dutchie (to name just a few) have scrambled to capture a wider audience by making their platforms more robust with little chance of outside interference.
Dutchie, CanPay, KindTap and PosaBit take the closed loop route.
The Integrated PIN debit solution from Dutchie allows dispensaries to accept in-store debit card purchases for exact dollar amounts, which means no rounding up, less customer confusion during the checkout process, and reduced likelihood of human error.
CanPay works by only dealing with financial institutions that are hip to the cannabis industry. The business in turn must bank with one of the existing depository programs that is cannabis compliant. On the other side of the counter, the customer pays by accessing CanPay on their mobile phone. CanPay generates a single-use token or a QR code that is presented to the clerk for payment.
KindTap, a Boston-based financial tech company targeting highly regulated industries, recently introduced a “first-of-its-kind” revolving credit line for cannabis customers that enables retailers to utilize digital credit payments.
POSaBIT provides cryptocurrency as an alternative form of payment. With in-store terminals, POSaBIT allows customers to quickly set up and load a digital wallet using debit or credit card and then complete their transaction at the register with the newly acquired cryptocurrency.
The cannabis industry has never given up in the face of detractors. And payment systems (or the lack of them) are just another hurdle to be overcome. Until there is federal cannabis legalization, the payment landscape in this industry will continue to be riddled with complications — but on the positive side, remember that progress often comes from the convergence of hard problems and new ideas that can lead to solutions.