Everything you need to know to get your business up and running.
According to Fortune Business Insights, the cannabis industry reached an astounding $20.47 billion in terms of market size in 2020. While this number may already seem impressive, that growth is expected to reach a whopping $197.74 billion by 2028.
This is largely because marijuana has become legalized in many states. Furthermore, due to the combination of increasing legalization and many pivotal cultural movements, the stigma associated with cannabis use (both medically and recreationally) has begun to dissipate.
However, while cannabis is quickly becoming legal in many states, it still remains illegal in many others, and marijuana continues to be classified as an illegal substance at the federal level.
As a result, the cannabis industry is still deemed high-risk. For this reason, securing dispensary credit card processing services can be a complex landscape to navigate.
This article will serve as a guide to businesses operating in this vertical. In the following sections, we will provide you with further context of the issues surrounding cannabis payment processing, as well as insight into options for trustworthy, transparent solutions and secure payments for dispensaries.
The Problem: What Are the Issues with Cannabis Businesses and Credit Card Processing?
Unfortunately, there are many freedoms and privileges awarded to traditional businesses that those operating in the cannabis industry are not privy to. Therefore, a lot of work needs to be done to level the playing field.
Because marijuana is still illegal at the federal level, federal banking regulations have caused most major financial institutions to blacklist operations within the industry. These restrictions naturally trickle down to the credit card and debit card industries. As a result, most major credit card networks, such as Mastercard and VISA, refuse cannabis-related payments in any capacity, even in states where cannabis can be legally purchased.
Traditional methods for directly accepting debit card and credit card transactions are not allowed, and there are guidelines you must follow to avoid non-compliance. Now, we’re not saying that there are no dispensaries accepting direct card payments in the United States, but the truth is that they are not technically legal, and these merchants are at high risk of having their accounts and operations flagged and shut down.
If you are interested in operating a cannabis dispensary, then you’ll need to search for an alternative, trustworthy, transparent payment processing solution partner like Payment Pluss, which caters to high-risk industries and businesses. This is the safest way to ensure that your operations remain compliant and guarantee the longevity of your marijuana dispensary.
Federal Regulations and Fraudulent Activity
It’s true that cannabis is still illegal at the federal level, but scrutiny of the industry has ebbed and flowed over the years. In 2013, the United States Department of Justice issued the Cole Memorandum during the Obama administration. This memorandum was sent to all U.S. Attorneys and provided guidelines on marijuana enforcement. The memo stated that the Justice Department would not prosecute marijuana-related offenses in states where cannabis was legalized and effective regulatory and enforcement systems were in place.
However, in 2018, under the Trump presidency, these guidelines changed significantly. Attorney General Jeff Sessions rescinded the previous memo with a memo of his own, dealing a solid blow to the industry, which was previously sheltered under Obama-era protections.
When William Barr took over the Attorney General office in 2019, he made an indication that the Justice Department would not actively prosecute companies previously protected under the Cole Memorandum, but the same form of official protection has never been re-established.
Another notable reason why the cannabis industry is considered high-risk is that it is particularly susceptible to fraud. Since traditional card payments are not accepted, dispensary owners often have to operate on a cash-only basis or attempt other workarounds, such as including ATMs on the premises, using cashless ATMs, or accepting electronic wallet apps.
Naturally, these forms of operations are at a high risk for fraudulent activities because cash is much more difficult to audit than other forms of payment, and books can easily be manipulated.
The Solution: Using Payment Pluss for Cannabis Credit Card Processing
We’ve covered the legal landscape surrounding cannabis payment processing. While the situation is complex, that doesn’t mean it’s hopeless. In fact, there are viable options available to cannabis operators looking to find alternative ways to process card payments. Working with a well-vetted merchant services provider such as Payment Pluss can help you navigate these murky waters while providing customers with the convenience they seek and ensuring your business remains profitable.
Dispensary ATMs
Having an ATM on-site at your dispensary is one easy way to work around the issues of directly accepting credit and debit card payments for purchases. Let’s face it—many of today’s consumers don’t carry large amounts of cash on hand.
In 2021, just 20% of all payments in the United States were made in cash. The largest share of payments was completed with credit and debit cards, which, combined, accounted for 57% of all payments.
Furthermore, consumers simply prefer to use cards for processing payments. A 2021 study found that 44% of consumers preferred to use debit cards for in-person payments, while 32% preferred the use of credit cards. In comparison, just 19% favored the use of cash for in-person payments.
Reasons for this decline in cash are numerous, such as a drop in in-person shopping, fewer opportunities to use cash, and increased use of P2P payment apps. Then, there’s also the very real personal risk associated with carrying around large amounts of cash.
Offering your customers various payment options is essential if you want to open yourself up to more business. Having an ATM on site is one of the most straightforward routes a cannabis merchant can take to accept credit and debit cards.
Cashless ATMs
Cashless ATMs are another more recent evolution of the traditional ATM that is becoming more and more popular among cannabis dispensaries. This point-of-banking system functions similarly to a traditional ATM, except there is no cash exchange at the end of the transaction.
Consumers insert their cards and are met with a number of on-screen prompts required to process the funds transaction. This procedure typically ends with the customer inputting their PIN. Once the transaction is complete, instead of receiving cash, the ATM dispenses a payment voucher that can be used to purchase products in-store. There is no cash exchange on-site, and the funds transaction from consumer to merchant is processed completely virtually.
One significant upside to having a cashless ATM on the premises is the ability to cut down on the amount of cash on hand you have in your store. Storing large amounts of cash in a depository is a significant safety and security risk, as it can make you a target for theft both internally and externally. Storing and transporting large amounts of cash can also incur additional expenses.
There is no downside to the cashless ATM. It provides your customers with an easy way to use their credit and debit cards to make purchases, helps mitigate the risk of having large amounts of cash on hand, and can also help increase your average transaction amount. According to NerdWallet, the average cash transaction is just $22, while the average non-cash transaction is $112.
This nifty solution is secure, transparent, and efficient, and it keeps businesses in compliance with federally regulated banks and credit card companies. The process is also very customer-friendly in that it functions in the same way as traditional ATMs.
High-Risk Merchant Accounts for Cannabis Payments
Cannabis merchant accounts allow cannabis retailers to accept credit cards and debit cards in a way that closely mirrors the traditional customer experience. The internal processes associated with this are notably different from traditional processes, but they are often largely indistinguishable from a point-of-sale or buyer perspective.
Unfortunately, merchant service providers who are willing to work with cannabis retailers are often difficult to find due to the high-risk nature of the business and industry. Furthermore, retailers who are fortunate enough to find them are often met with significantly higher rates and processing fees, as well as more restrictive policies and transaction volume limits. To learn more about high-risk merchant accounts, check out our High Risk Merchant Services.
What Makes Payment Pluss the Best for Your Business
Owning and operating a business is no small feat, and running a successful retail operation in the marijuana industry is even more impressive. Due to the federal restrictions imposed on marijuana use, credit card processing can be a complex aspect to navigate. Federal banking regulations cause most financial institutions and credit card networks to have a strict, hands-off approach when dealing with businesses in the cannabis industry. As a result, options for financing and payment processing are substantially limited. This remains true even in states where marijuana use is legalized at the local level.
Fortunately, there are alternative options available in the form of high-risk merchant service providers, such as Payment Pluss, which can provide you with the peace of mind you need to continue to grow and thrive.
Payment Pluss is a trusted provider and can become a valuable partner that helps you gain clarity around the best steps to take when it comes to payment processing. We work with our clients’ unique needs and provide secure, transparent, efficient, customer-friendly services that will support you in the years to come. If you’re interested in learning more about how we can help you along your journey, apply today.