by Grace Barone
The devil's lettuce. Have you heard of it? Whether you're pro or against cannabis, the fact of the matter is times are changing and many states have legalized pot. This means that legitimate businesses are opening up and starting to sell it. You can now walk into a store and pick it up just as casually as you would a cup of coffee (some may say it's even more personal and calm than ordering a latte). While laws are changing from state to state, cannabis is still illegal on a federal level. Laws are confusing and there are a lot of grey areas and loopholes within the cannabis industry. This can confuse both marijuana entrepreneurs and cannabis customers. The main point of confusion revolves around paying for it. What is allowed and what isn't? In this blog, I'll break down the details of cannabis payment processing and how to go about purchasing and selling this controversial plant.
Why Selling this Product is Different
So why is payment processing for cannabis different from every other product or service on the market? Well, as I mentioned earlier, cannabis is still illegal on a federal level. This means credit card brands like Visa, MasterCard, and American Express, do not authorize the purchase of these products. This is because of its high-risk nature. So, as a result, businesses that sell cannabis can not accept credit cards. In the modern-day world, convenience is everything. Credit card payments are one of the most popular payment methods so a business that isn't able to accept them is at risk of losing a massive amount of potential customers.
Work Arounds for Accepting Payments
The cannabis industry brought in around 33 billion dollars in 2023. So dispensaries are finding ways to accept payments despite not being able to accept credit cards the traditional way.
Cash
This is a given. If you can't accept credit cards, cash is the next best option. Cash remains the primary method of payment for many cannabis dispensaries due to the limitations imposed by traditional credit card networks. While handling cash transactions may seem straightforward, it presents numerous challenges, including security risks and operational inefficiencies. Dispensaries must invest in robust cash management protocols to safeguard against theft and ensure accurate accounting of funds. Not to mention, not many people carry large amounts of cash anymore. It is much harder for budtenders to upsell and it's less likely that customers are going to make large purchases or impulse buys.
ACH Transfer
Some cannabis businesses opt for ACH (Automated Clearing House) transfers as an alternative payment method. ACH transfers allow customers to electronically transfer funds from their bank accounts to the dispensary's account. While ACH transfers offer convenience and security, they may require additional setup and processing time compared to cash transactions. Businesses can instantly confirm the existence of the funds because these transactions are electronic and move straight from the customer's account to your bank account. Bank transfers or ACH transfers are easy, safe, reputable, and compliant. The difficulty in taking ACH payments from your clients is the need for a 3rd party, which could get a little sticky. The ACH payment solution and POS should work together seamlessly to provide a smooth consumer experience. An easy way to do this is by having customers scan a QR code for quick and easy payments.
PIN Debit
PIN debit transactions involve the use of a customer's debit card and personal identification number (PIN) to authorize payments. Unlike credit card transactions, which are prohibited for cannabis purchases, some payment processors typically permit PIN debit transactions. However, dispensaries must ensure compliance with regulatory requirements and work with payment partners that support PIN debit transactions for cannabis sales. This sometimes confuses people because many people don't realize that a debit and a credit card are different. When a dispensary accepts debit and not credit, they are at risk of having upset customers who don't fully understand the differences.
Cryptocurrency
Cryptocurrency has emerged as a novel payment option for cannabis businesses seeking to circumvent traditional banking restrictions. By accepting cryptocurrencies like Bitcoin, dispensaries can provide customers with a secure and pseudonymous payment method. However, the adoption of cryptocurrency in the cannabis industry is still evolving, and businesses must navigate regulatory uncertainties and uncertainty in the cryptocurrency market. This will probably be a more attainable option when the cryptocurrency world becomes more stable. But, the cannabis industry and cryptocurrency are becoming more accepted by the public at a similar rate, so integrating crypto at a dispensary early on may be a move that pays off in the future.
Point of Banking (POB)
Point of Banking (POB) solutions enable dispensaries to accept electronic payments through a dedicated terminal that processes debit card transactions. POB terminals function similarly to ATMs, allowing customers to input their card information and authorize payments. Which means you can technically pay with a credit card! While POB solutions offer an alternative to traditional credit card processing, dispensaries must ensure compliance with regulatory requirements and partner with reputable POB providers, like VMS!
Conclusion
In the ever-evolving landscape of cannabis legalization, payment processing remains a complex and challenging aspect for businesses operating in the industry. While federal restrictions limit the use of traditional payment methods like credit cards, dispensaries have explored innovative solutions to make transactions and meet customer demands. Whether through cash transactions, ACH transfers, PIN debit, cryptocurrency, or point-of-banking solutions, cannabis businesses must prioritize compliance and security while still providing convenient payment options for their customers. As regulations continue to evolve and technology advances, the future of cannabis payment processing holds promise for further innovation and integration within the mainstream financial world. If you're interested in how your dispensary or smoke shop can start accepting payments head to getvms.com and get in contact with one of our small business specialists for more information.