As we enter 2024, a whopping 24 states across the country have legalized recreational cannabis sales, with medicinal marijuana being sold in an additional 14. That’s 38 out of 50 states where you can legally purchase cannabis, but despite this, cannabis payment solutions have been hamstrung by outdated federal policies.
Under current law, no institute that is involved in any form of interstate finance can process payments for cannabis products in the US. This means that dispensaries across the nation have long struggled to facilitate fast and secure payments for their clients. While there’s hope for reform in the coming years, as it stands, processing payments is a major hurdle for any cannabis retailer.
A payment processor is a service that allows merchants to process payments. Things like debit/credit card terminals and online payments all require a payment processor to handle the banking data. While there is no shortage of options out there, not all payment processors are created equal, and there are several key differences that cannabis retailers need to be aware of.
For dispensaries all across the land, cash is still king. The untraceable nature of fiat currency has long been the standard for any industry that might be dealing with onerous regulations, but it comes at a cost. For starters, cash simply isn’t as prevalent in modern society as it once was. In fact, 41% of US adults don’t use cash at all on a typical weekly basis. While this can easily be remedied by setting up an ATM in the lobby, that comes with its own fees and challenges.
For one, upselling can be rather difficult if a customer only has a limited amount of cash on them, and most customers are unwilling to hit up an ATM to make a purchase, especially if they have to pay a service fee. Second, cash-only transactions are significantly slower to execute, more prone to mistakes, and take much longer to tally up at the end of the day. As a final concern, having large sums of cash on hand is always going to be a security risk. While cash remains the go-to payment option for most retailers and clients, other cannabis payment options exist that can save you these headaches.
Sometimes called a “cashless ATM”, Point of Banking sales have become increasingly common for cannabis payments despite struggling to take off in other markets. PoB payments function identically to an ATM transaction and can be used at the point of sale to finalize any payment — but with a catch. Since it is functionally an ATM, customers will be beholden to the same standards and practices of any other ATM transaction; namely, service fees and minimum value increments. While the former is self-explanatory (users may be charged a service fee either by their bank or by the merchant), the latter can be annoying for many customers.
As an ATM payment, transactions done via a PoB cannot handle exact prices and are usually rounded to a minimum increment. What this means in practice is that a purchase of $92.46 has to be rounded up to the next minimum increment. Usually, this is every $5, though some merchants can set it as low as a single dollar. Any amount charged over the purchase price is returned to the customer as cash.
While this could be an annoyance for some customers, a majority are likely to appreciate the convenience of being able to pay via card. As an added bonus, giving customers a few dollars in change after a sale is a great way to increase tips for the budtenders.
Automated Clearing House (ACH) payments are another solution available to cannabis retailers. These are electronic payments that are transferred from the customer’s bank account directly to the recipient's without using established credit networks (e.g. Visa or Mastercard). What this means, is that customers can seamlessly pay with their cell phone or a QR code at the counter.
While cannabis payments like this don’t require coordination with credit card companies, they do require a third-party payment processor. Customers will need to install an app and register their account information with the provider before they can begin using the service.
Many people (customers and retailers alike) might be surprised to learn that there are actually two forms of debit transactions: signature debit and PIN debit. If you’ve ever been asked at a payment terminal to select “debit” or “credit,” you’re really being asked if you want to use a signature or PIN debit payment.
Signature debit is what most people think of and gets its name from the fact that you need to sign for the purchase. These transactions are handled offline and verified by the credit network of the card, meaning that they cannot be used by cannabis retailers.
PIN debit, on the other hand, is handled by the electronic funds transfer (EFT) network in real-time. This means that the account is charged immediately and the payment is processed on the spot. These “online” transfers are faster, cheaper, and typically more secure than a signature debit payment.
But, like always, there’s a catch.
Since these payments are still being resolved with a debit card, they are still beholden to federal financial regulations barring cannabis purchases. This means that many dispensaries choose to “reclassify” their business as a florist, wellness center, or simply an obscurely named LLC. These transactions still technically violate federal law and can be risky. They can also be quite expensive.
Many companies specialize in PIN debit payments for cannabis retailers, but they can be a mixed bag. Predatory contracts, hidden fees, and high transaction costs can all come back to bite an unwitting retailer down the road.
This is a tricky question as these systems all have their strengths and weaknesses. If your primary concern is abiding by the letter of every law, then cash is going to be the best bet for staying on Uncle Sam’s good side. However, for those looking to jump into the 21st century, Point of Bankng is likely the best solution for cannabis payments. The speed and security of these payments are ideal for both customers and retailers while the familiarity of paying with a card is sure to help upsell products. Additionally, since it is treated like any other ATM transaction, it doesn’t run afoul of any current federal regulations.
No matter the size of your operation, finding solutions for accepting cannabis payments is going to be an ongoing concern as regulations continue to change. If you’ve got questions, we’re here to help. Book a free demo today to discover how KayaPush can help simplify your operations and cut overhead costs.
“KayaPush has it all in one platform where you can kind of build what you need. Especially as a start-up, that’s important to us to be cost-friendly. You have the best price for what you’re offering. ”
-Marry Ann from Riverside Wellness-