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Everything you need to know about cannabis payment processing solutions.
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. .
The Controlled Substances Act of 1970 made the possession of cannabis for any purpose federally illegal. Nonetheless, the Federal Government has begrudgingly permitted individual states to establish their own laws surrounding medical and recreational cannabis. The classification of cannabis as a Schedule 1 Drug creates legal complications, especially for cannabis enterprises operating near state borders or across state lines.
From the very beginning, cash was overwhelmingly the dominant form of payment, both because of the federal illegality of cannabis and because "Cash is King." Cannabis businesses typically would have their customers make cash withdrawals from an in-store ATM and would not accept any form of credit or debit card.
During the COVID-19 pandemic, the cannabis industry experienced explosive growth and dispensaries started moving away from cash in higher numbers to avoid the spread of illness and the change shortage. While America slowly returns to normal after the COVID-19 pandemic, consumer’s preference for digital payments versus money has remained. Digital payments are quicker, cleaner, and more convenient.
Is there any difference legally between Medicinal Cannabis and Adult Recreational Use?
Currently, medical marijuana is legal in 37 states, the District of Columbia (D.C.), and four U.S. territories. As of January 2022, cannabis is fully legal (meaning, medicinal and recreational) in 18 states, D.C., and two U.S. territories (Guam and the Northern Mariana Islands).
Legal recreational states include:
Several states fully legalized cannabis in 2021, with more expected to propose and pass some form of legalization legislation in the foreseeable future.
Yet until federal reform legalizes cannabis or removes cannabis as a Schedule 1 controlled substance, all major credit card networks will continue to prohibit their customers from using credit cards for cannabis payments. Shopify directly prohibits the sale of any product derived from cannabis, including marijuana-derived CBD.
In general, the cannabis industry currently has a lot of momentum. When taken to a vote, most cannabis legal initiatives have resulted in the statewide legalization of cannabis.
Read MoreThough 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.
Read MoreAs 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.
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.
Aeropay receives regulatory approval in all states it operates in.
Customers pay exactly the right amount, no rounding to the nearest $5.
Customers are never charged a fee.
You're in control with the ability to void and refund transactions before they have settled.
Best APIs and technology end points to allow for a seamless integration.
Aeropay doesn't require any bulky or expensive hardware for customers to pay in your store.
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.
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.
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?
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.
The cannabis industry has a lot to consider, and businesses are becoming savvier regarding their entire cannabis technology ecosystem, including payments.
When deciding which cannabis payment option makes the most sense for your business, be sure to keep the following variables in mind:
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.
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.
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.
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.
We’d love to show you how we put bank-to-bank transfers to work for your business.
