It’s estimated that 70% of cannabis businesses don’t have a relationship with a financial institution. This means most cannabis companies resort to operating on a cash-only basis, including consumer-facing and business-to-business transactions. Tax code 280E creates problems for cannabis businesses looking for a bank account and payment processor. Most banks won’t work with cannabis companies because of this tax code. Financial institutions fear federal prosecution for involving themselves with a controlled substance. Some credit unions will work with cannabis businesses, but operators face exorbitant fees sometimes totaling tens of thousands of dollars per year, just for having a bank account.
Cannabis dispensaries are arguably affected the most by these regulations. Consumers can’t pay with a credit or debit card at the dispensary, forcing them to withdraw cash at the ATM. This small inconvenience might negatively impact a marijuana dispensary’s customer retention. Lengthy checkout times, concerns over the germs on physical currency, and disorganized cash management techniques all contribute to your customer retention rate. Roughly 50% of consumers consider the checkout process to make or break their overall retail experience. Seamless transactions are vital to the consumer.
Internally, an abundance of cash on site increases your risk of theft. Most businesses safeguard their cash and valuables from external threats, but data shows 90% of cannabis industry theft comes within the organization. Whether that’s an employee, an employee bypassing policy for customers to receive unauthorized discounts, or other dishonest means of accessing money from the inside. Just 10% of theft within cannabis organizations is estimated to be from an outside source, including robberies, as reported by MJ Biz Daily.
There are three main types of internal cash fraud cannabis business owners should be aware of: larceny, skimming, and fraudulent disbursements. Larceny is outright removing the cash from your store. That might be a safe, vault, or register. Skimming is when the employee is simply not recording the transaction, and instead pocketing the cash themselves. An example of fraudulent disbursement is when an employee purchases something for personal use and submits it for reimbursement as a business expense. It could also be payroll, invoice, and billing schemes as a dishonest means to get cash from you.
Though less likely, the risk of an external threat is not one to dismiss. Last year, a man was tragically killed in a Portland, Oregon dispensary after a year-long string of local dispensary robberies. The thefts resulted in $583,000 in cash and products gone.
There’s also the cost of transporting cash. Well-funded dispensaries can afford armed and unmarked security vehicles, but smaller dispensaries might have to transport hundreds of thousands of dollars in their personal vehicle. Many dispensary owners have to travel to their local, and even federal, government office to pay taxes because they don’t have a bank account. Some operators don’t even risk flying to their destination, fearing an encounter with airport security for carrying such a large amount of cash.
It’s important to note that data from 2017 says marijuana dispensaries serve, on average, 100 customers per day. Large dispensaries might see even more than that. Even if your employee isn’t intentionally stealing from your company, managing 100+ cash-only transactions per day creates ample room for error without proper procedures in place.
It’s more likely that an employee makes a simple error which then snowballs into an accounting nightmare, rather than stealing from the company. Clear, well-written expectations surrounding cash management reduces the chance of human error.
Creating strong standard operating procedures (SOPs), cultivating a transparent and honest company culture, and investing in a dispensary payment processor that tracks your cash are just a few ways to tighten your cash management systems. If theft takes place, employees are also more likely to steal from companies with loose regulations; so it’s in every cannabis operator’s best interest to have clear security measures in place.
Every process involving cash needs its own SOP. This includes opening and closing drawers, depositing cash, and transporting cash. Cash discrepancies should especially have clear procedures in place. Most of the time, when money is missing from the cash drawer, it’s because of a human error, most commonly giving incorrect change or misplacing a credit card receipt.
New hires might think it’s excessive to have strict SOPs for each action involving money. On day one, before they touch a cash drawer, overemphasize why cash management strategies are crucial to cannabis businesses. Cite tax code 280E, which prevents marijuana businesses from having even a simple bank account or claiming traditional business expenses. Your employee will be more likely to adhere to these SOPs if you thoroughly explain the consequences of not following them.
This leads to cultivating a transparent and honest company culture. The number one reason fraud within an organization is uncovered is because an employee, customer, or other party familiar with the crime reports it to the company, according to the ACFE report. Organizations with a hotline to report internal fraud saw nearly 50% less losses than companies without one, so you might consider opening a hotline.
Putting the risk of fraud aside, an honest and transparent culture means your employees are more likely to come to you when something isn’t working. If they notice a new hire is struggling with a particular cash management procedure, they can recommend changes to your leadership team without fear of being reprimanded.
Investing in a high-quality, cannabis payment processor is by far the easiest way to combat human error. Be advised: installing a cannabis payment processor doesn’t replace cash management strategies, but it makes your cash management processes easier and more accurate. AeroPay doesn’t involve cash, credit, or debit cards. It’s easy and free for the customer to use. The software streamlines your cannabis dispensary’s transactions in one organized dashboard. No more scrambling to dig up receipts and reconcile the cash drawer.
Cashless payment processors can increase the average order value, too. One of AeroPay’s clients saw a 25% increase in average order value after implementing AeroPay, while another saw a 15% increase in their average order value. Customers aren’t limited to the amount of cash they have in their wallet when they use a contactless payment processor in your dispensary. It’s hard to upsell someone who has to pull out more money from the ATM and pay another round of fees. AeroPay doesn’t charge your customers a fee, and it’s easy for your staff to simply scan another item if your customer wants to make a last minute addition.
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