The 2022 Guide to Cannabis Payment Processing Solutions

Everything you need to know about cannabis payment processing solutions.

Compliant, digital cannabis payments

Introduction to cannabis payment processing

The recent surge of states passing legislation for legalized cannabis in some form has been nothing short of revolutionary. Not since the end of alcohol prohibition in 1933 has a product been rapidly unleashed onto the licensed market with such high and widespread demand. With each passing year, cannabis legalization, normalization, and demand continue to grow.

While the industry looks optimistically towards the future, the current federal classification of cannabis brings substantial challenges.

One of the most common issues faced by rising cannabis businesses is the need for reliable, consistent, and fully legal cannabis payment services.

As marijuana remains a Schedule 1 drug under the Federal Controlled Substance Act, companies within the cannabis space must manage their cannabis payments and corresponding finances with extreme diligence.

If you currently own or operate a cannabis dispensary - whether recreational, medical, or both – you likely have questions about the current landscape of available cannabis payment options.

Because of cannabis changing legal status, as well as making transactions as transparent as possible it is important to have a good cannabis payment provider. While cash is commonly used to make cannabis payments, cashless payment options allow for bookkeeping and easier transparency.

In this guide, we'll walk you through all the cannabis payment solutions currently utilized in the industry. We'll share the risk and benefits around each option.

By the end of this guide, you'll understand more about your options to get rid of cash payments and the benefits of having a reliable cannabis payment provider like AeroPay for easy electronic cannabis payments. .

What is the Risk of Cannabis Cash Payments?

Cannabis businesses are putting up with cash payments despite the risks.

Though cash payments are the most common way to transact in the retail cannabis space, it is not without its share of complications. Transacting predominantly in cash, especially when operating at a high-volume location, can create unforeseen additional costs associated with cash management.

Cash Risks

Tax collection fees

Cash theft

Increased time spent by employees counting cash

Armored vans used to make cash deposits

Security threats for employees in store and delivery

Transfer of illness

Debit Cards - "Cashless ATMS" - or the "ATM Loophole"

What is really happening when a business allows you to make a cannabis related purchase with a debit card.

As the cannabis industry rapidly grows and evolves, dispensaries continuously look for cash alternatives, including cashless automated teller machines (ATM).

The cannabis industry newswire exploded at the end of 2021 when Visa issued a statement titled “Cashless ATM” and Misuse of ATM Transactions Prohibited.

In this statement, Visa stated, “Cashless ATMs are primarily marketed to merchant types that are unable to obtain payment services — whether due to the Visa Rules, the fuels of other networks, or legal/regulatory prohibitions. Therefore, supporting this scheme affects the integrity of VisaNet and the Plus network, as well as the Visa payment system”.

This has impacted the cannabis industry, as many businesses have used Cashless ATMs as an alternative to payment methods used in traditional retail.

How do Cashless ATMs work at dispensaries?

A customer requests $100 at a cashless ATM terminal. After providing necessary security info, i.e., Personal Identification Number (PIN), the terminal dispenses a receipt to the customer. The customer presents the receipt to the budtender. The budtender deducts the purchase total, applicable tax, and cashless ATM fee and returns any remaining change to the customer, still requiring dispensaries to have cash on hand.

Cashless ATMs allow dispensaries to accept debit card payments indirectly. A dispensary customer uses the cashless ATM to withdraw cash from their bank account and purchase cannabis products at the point of sale without handling money for most or all of the transaction. On the consumer’s bank statement, rather than charges appearing as a payment made at a dispensary, the transaction appears as a cash withdrawal from an ATM.

Cashless ATMs permit the processing of cannabis payments with credit card rails - which is illegal.

According to The Chicago Bar Association,

"In short, processing a credit card payment for cannabis would be not only a violation of Network Rules, but it would be a violation of federal law as well. Further, a violation of Network Rules may result in disciplinary action against the Merchant, as well as a potential fine of $200,000 or $2,500 per day (which can be retroactively applied to and from the first day of noncompliance), and termination of the Merchant’s account.”

AeroPay vs. Cashless ATM

Compliant

AeroPay receives regulatory approval in all states it operates in.

Accurate Payment Amounts

Customers pay exactly the right amount, no rounding to the nearest $5.

No Fees For Customers

Customers are never charged a fee.

Easily Void & Refund Transactions

You're in control with the ability to void and refund transactions before they have settled.

Seamless eCommerce & POS Integration

Best APIs and technology end points to allow for a seamless integration.

No Hardware Needed

AeroPay doesn't require any bulky or expensive hardware for customers to pay in your store.

Aeropay Landscape Logo

Cashless ATM

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How about allowing for crypto currency payments at a dispensary?

A fresh, but volatile and risky payment option.

Since Bitcoin was developed in 2009, it and other cryptocurrencies (altcoins) have become increasingly popular.

While cryptocurrencies do have benefits, they are far from ideal for businesses operating in the cannabis industry. For starters, government regulation and conflicting laws in the cannabis space make it difficult to implement a crypto-based payment system directly. Additionally, only a handful of your potential customer base owns any crypto to begin with. And, importantly, cryptocurrency can be highly volatile.

As an example, Bitcoin lost approximately 85% of its value within a month in 2017. Especially in a heavily regulated industry, it is near impossible to operate a business when the value of your primary currency is unpredictable from week to week.

Is it legal to process credit cards at a cannabis dispensary?

It's not worth the risk, major credit card providers have declared it is illegal to pay for cannabis with a credit card.

Credit Card Risk

Americans are familiar with making everyday purchases with their credit cards.  Often, it catches the casual cannabis consumer by surprise to learn that dispensaries do not accept credit cards as a payment method.

As cannabis is federally illegal and classified as a Schedule 1 controlled substance, major credit card companies, i.e., VISA, MasterCard, and American Express, currently prohibit credit card cannabis payments.

With the cannabis industry's focus on providing sophisticated and tech-savvy consumer buying experiences, archaic cash-only requirements can be off-putting to the customer. Many Americans use credit cards programmed in their mobile phone wallets and prefer cards to cash for convenience and loyalty points.

Any payment provider that currently offers credit card payment solutions to cannabis-related businesses is not compliant with federal law and possibly subject to financial and criminal penalties. Fines, having money stuck in escrow, MID masking, and active lawsuits (including criminal proceedings) are all potential problems of using credit cards in the cannabis space.

Though accepting credit cards may sound tempting, cannabis businesses should avoid it until federal legislation provides clarity and protection around card payment services.

Is it legal to accept ACH & Bank Transfers at a dispensary?

Digital cannabis payments enable consumers to pay from their bank account directly to the dispensary using their mobile phone.

Using ACH and digital payment platforms, cannabis owners can leverage financial technology (FinTech) to help protect themselves from legal challenges, minimize costs, and increase operating efficiency. These payment options offer various unique features, such as full integration, prepay, pre-authorization, and easy voiding/refunding. Both consumers and retailers prefer digital cannabis payment options, leading to increased market share for these payment platforms within the industry.

Undoubtedly, digital payments and cannabis continue to go hand in hand. As time goes on and the industry continues to grow, the use of digital payments will become even more widespread.

But why have digital payment solutions, like AeroPay, become so popular?

How do dispensaries address problems with cash payments?

Cash payments can be problematic for cannabis companies. Cash shortages, processing costs, and security issues are just a few of the common issues that cash can create. It is also impossible to accept cash for online orders or for customers to prepay with cash when they place an order for pickup. Digital payment solutions help businesses avoid these common issues, operate more efficiently, and keep better track of payments.

Streamlined Operations

Integrating with a digital payment solution like AeroPay, it is easy for a dispensary owner to monitor every component of their business from a single, centralized location. Tracking payments, generating reports, and correcting errors as needed can now all be done with ease.

Better Customer Experience

Aren't you tired of telling your customers, "We are going to charge you an ATM fee, round up to the nearest five, and then give you two dollars back—sound good?" If so, you are not alone. Digital payments are not only much easier for the cannabis retailer but also less expensive for your customers.

Same Day or Next Day Deposit

A few businesses remain hesitant to switch to digital payments because they worry about getting paid. Through advances in FinTech, payment timelines are significantly accelerated through smart bank to bank transfers. Today, AeroPay offers next-day or even same-day deposits.

Delight Your Customers Throughout Their Journey

Besides providing customer benefits at the physical register, a digital payment system also makes it easier to manage other aspects of the customer experience, such as Buy Online Pickup in Store (BOPIS), delivery, and more.

The cannabis industry has a lot to consider, and businesses are becoming savvier regarding their entire cannabis technology ecosystem, including payments.

ROI of Cashless Cannabis Payments

How to Determine the Best Solution for Your Business

When deciding which cannabis payment option makes the most sense for your business, be sure to keep the following variables in mind:

Margin

How does a given cannabis payment solution affect your bottom line? While there may be a fee, consider the impact of a cashless payment solution to increase the total transaction value. Be sure to understand all the costs associated with a payment solution. When comparing margins across payment solutions, don't forget to consider cash management, compliance, and settlement times.

Revenue

Does a given payment processing solution affect your business's ability to generate income? You might be able to get away with passing fees onto customers, but as the cannabis space evolves, consumers look for the best products and the best buying experience. The ideal cannabis payment processing solutions will benefit all parties involved.

Current Retail Operations

How does your current payment processing affect your broader operations? Asking customers to visit an ATM, wait for assistance at a single register, or go out of their way while visiting your store, will increase wait times and impact your bottom line.

BOPIS, Curbside, & Delivery

Curbside pickup, BOPIS, delivery, and other shopping channels are becoming increasingly popular. Be sure to select a cannabis payment solution that makes it easy to process payments for all shopping experiences.

Integration

How easily can you integrate a given payment processing solution into your already-existing operating systems? A payment solution should be simple for consumers, budtenders, and management alike.

Optionality for Customers

In the non-cannabis space, customers choose between Visa, Mastercard, American Express, PayPal, Venmo, AfterPay, Klarna, Gift Cards, and more. Customers making a cannabis purchase may also want the ability to choose how to pay. Ultimately, the more difficult you make it for customers to pay you, the more difficult it will be to continue generating business.

Customer Experience

Place yourself in the shoes of your customer. What types of payments would you, as a consumer, prefer to have available? Anything that can be done to increase security, efficiency, transparency, and legitimacy will make it much easier for you to ensure your customers are happy.

Clearly, there is a lot to consider when choosing which cannabis payment process is ideal for your dispensary. When considering all variables above, it’s evident digital payment providers, like AeroPay, will become the preferred payment solution in the cannabis space soon.

The Future Legal Aspects of Cannabis Payments

What to Expect for Legal Aspects of Marijuana Payment Solutions

Over the past decade, the cannabis industry has witnessed incredible changes. But these changes are only the beginning. Over the next few years, there will likely be several more remarkable changes that alter the legal status of cannabis and corresponding marijuana payment solutions.

Secure and Fair Enforcement (SAFE) Banking Act

Re-introduced in 2021, the purpose of this Act is "To create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses." When passed, more banks and financial institutions should feel comfortable providing additional banking services to the cannabis industry. However, until cannabis is federally legal or removed as a Schedule 1 drug, big banks and credit card companies may continue to prohibit cannabis-related transactions.

Removal of Cannabis as a Schedule 1 Drug

Per the Controlled Substance Act of 1970, cannabis is currently a Schedule I drug. There has been an ongoing, bipartisan push to reschedule or remove cannabis, which will help destigmatize cannabis while providing legal legitimacy to the industry.

Section 28(e)

Initially introduced in the Securities Exchange Act of 1934, this regulation helps promote "safe harbor" banking. By leveraging this regulation, and others like it, cannabis companies can bank compliantly.

National Legalization

Currently, 18 states (along with D.C. and two territories) have legalized cannabis at the recreational level. Though it will take some time for cannabis to become legal across the nation, the necessary legal processes are already in motion.

Legal future of cannabis payments

With each passing year, the legalization of both recreational and medicinal cannabis is becoming more accepted across American society. With greater acceptance, creating cannabis payment systems and their supporting infrastructure has become increasingly more possible. A Pew Research Center Poll from April 2021 revealed that 91% of Americans now support the federal legalization of cannabis—an all-time high.

As more states allow some form of legal and licensed cannabis, payment processing options will continue to expand. Within the next ten years, most states with a licensed cannabis market will incorporate payment processing infrastructure comparable to what exists for industrial hemp-derived products today. A challenge for cannabis suppliers will be finding ways to minimize fees and ensure payments are consistently processed.

While traditional banking services and credit card payments may become available for cannabis-related businesses at some point in the future, cannabis transactions will likely be considered high risk for quite some time. High risk regarding credit card payments will lead to significantly higher processing fees than seen with ACH payments.

As a result, bank transfers will continue to remain a popular payment option throughout the cannabis industry.

How to Get Started with AeroPay

Signing up for AeroPay is easy. Simply complete a compliance form and a training overview (total time required is less than 2 hours). At that point, your business will be ready to accept payments.

Digital payment options, without a doubt, represent the future of the cannabis industry.

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