Cannabis retailers face a difficult set of challenges, particularly when it comes to an area most other sectors take for granted: payment processing. As dispensaries strive to operate efficiently and comply with regulations, reducing cash costs, maintaining redundant payment options, and implementing closed-loop systems and other technological advancements are critical considerations.
One of the most significant challenges for operators is the sector’s reliance on cash transactions. Due to the plant’s federal illegality in the United States, many financial institutions are hesitant to work with industry businesses, leading to a heavy reliance on cash. This dependence poses security risks and incurs substantial costs related to cash handling, storage, and transportation.
To mitigate these issues, businesses must invest in robust security measures. This includes installing high-quality safes, employing security personnel, and setting up comprehensive surveillance systems. While these steps offer a near-term fix, they are expensive and often serve as only temporary solutions.
Partnering with cannabis-friendly financial institutions can alleviate some of the challenges of cash transactions. A growing number of banks and credit unions now offer a range of treasury services to cannabis businesses, facilitating safer, cashless transactions across the supply chain. Establishing relationships with these institutions can help businesses reduce the costs and risks associated with cash handling while ensuring compliance with financial regulations.
To mitigate the reliance on cash, retailers and others are exploring a variety of payment options. Each method has its own set of advantages and challenges, making it essential for businesses to take care as they evaluate which options best suit their needs. In a rapidly-changing business environment, many operators find it helpful to maintain multiple payment-processing solutions, adding redundancy to their operation while empowering their customers with more options.
Although prominent consumer payment technologies such as Apple Pay and Google Pay remain averse to cannabis transactions, Automated Clearing House (ACH) solutions are gaining ground in the industry. These app-based systems enable direct bank-to-bank transfers, providing a compliant, transparent, and secure alternative to cash, but they require consumer adoption, which can be a barrier. Because ACH technologies require a direct connection to consumers’ bank accounts, older shoppers may hesitate to use them. Nevertheless, ACH solutions offer a reliable electronic payment method that aligns with federal regulations. Offering seamless transactions, many of the mobile apps currently in use were designed specifically for the cannabis industry. Some systems even integrate with customer loyalty programs, encouraging repeat business through rewards and incentives.
Although traditional credit card networks do not permit cannabis transactions, some businesses continue to attempt debit and prepaid card solutions as alternatives. While there are certainly potential business benefits to card acceptance, such as an increase in average basket size, due diligence is crucial to ensure the providers and processors comply with applicable regulations and requirements. It cannot be overstated that credit card transactions for cannabis products remain prohibited and are unlikely to be allowed until the plant is federally legalized.
The cannabis industry is at a pivotal juncture where innovative payment solutions can significantly enhance operational efficiency and financial security. By reducing reliance on cash, exploring diverse payment options, and implementing redundant systems, businesses can navigate the complexities of the financial landscape and position themselves for sustainable growth.
As the industry evolves, continuing to stay abreast of regulatory changes and technological advancements will be crucial. Businesses that proactively adopt compliant and consumer-friendly payment systems will not only reduce their operational costs but also set themselves up for financial security and success.
As chief strategic business development officer for Safe Harbor Financial (SHF), Tyler Beuerlein liaises with financial institutions, government officials, and regulatory bodies. SHF is a leading provider of financial services and credit facilities for the regulated industry.
