Payment Collection for Cannabis Businesses – Everything You Need to Know

Legal cannabis is one of the world’s most exciting and fastest-growing markets. Yet despite its ever-increasing social and political acceptance, cannabis businesses still face roadblocks when it comes to payment collection. Most major banks still refuse to do business with the cannabis industry, leaving canna-business owners to navigate the often confusing world of alternative payment collection. In this article, we’ll cover the unique payment processing needs of cannabis, CBD, and ancillary businesses, with essential tips to help you find the best cannabis payment processor to keep your business compliant and thriving.

Why Won’t Banks Work With Cannabis?

From a banking standpoint, cannabis and CBD are considered “high-risk” industries (alongside alcohol, tobacco, gambling, adult entertainment, dating services, travel agencies, and dietary supplements). This means most conventional banks will not serve this industry at all, while those that do typically charge significantly higher rates and fees and also may subject their clients to monthly transaction limits and other restrictions.

Legality

Cannabis’s murky legal status in the United States (federally illegal, yet legalized to varying degrees in most individual states), and outright illegality in many other countries are the primary reason cannabis still sits firmly in the high-risk category. US money laundering laws prohibit banks from processing transactions involving illegal activity – including the production, sale, and distribution of cannabis. Transactions involving ancillary businesses (including CPAs, insurers, consultants, and lawyers) servicing cannabis companies could also be defined as aiding illegal activity. Even in countries where cannabis is completely legal, such as Canada, major banks that operate internationally remain reluctant to work with the cannabis industry.

Public Image

While the widespread public opinion of cannabis across the globe has evolved considerably in recent years, many financial institutions still associate cannabis – including its non-psychoactive compounds such as CBD – with marijuana’s former unsavory and taboo connotations. Concerns over how connections to the cannabis industry may influence a bank’s image in the eyes of the public, shareholders, and other investors continue to discourage many financial institutions from taking on cannabis and CBD clients.

Who Are Cannabis Payment Processing Services For?

Any business involved with the cultivation, sale, manufacture, or distribution of cannabis or cannabis-derived products absolutely must utilize payment processors specializing in high-risk industries, with a specialized familiarity with the cannabis industry’s unique needs. This includes:

• Dispensaries
• Commercial growers
• Distributors
• Testing labs
• MMJ doctors
• Head shops and other paraphernalia retailers
• Ancillary businesses servicing the cannabis industry (also known as marijuana-related businesses or MRB), including accountants, legal professionals, security personnel, and many others.

Payment Processing for CBD and Hemp

Businesses dealing strictly with CBD and/or industrial hemp products (which legally must contain under .03% THC) have it somewhat easier when it comes to banking. CBD is completely legal to buy, sell, and possess throughout most countries, including the US. The biggest difference is that, unlike marijuana, CBD products can legally be purchased via credit card. However, despite its legal status and a growing air of legitimacy as a medicinal product, the banking industry still classifies CBD as a high-risk sector, frequently subjecting it to the same restrictions as cannabis.

Payment Processing for Delta-8 THC

Products made with delta-8 THC make up a rapidly growing corner of the legal cannabis industry. Though several US states have outright banned it, delta-8 THC is derived from industrial hemp, making it federally legal under the United States’s 2018 Farm Bill, even in states where marijuana is still completely illegal. Likewise, delta-8 THC is generally considered legal in most other countries where cannabis is legal to varying degrees. Despite its technical legality, businesses dealing in delta-8 THC also sit solidly in the high-risk banking category.

Payment Options for Cannabis Businesses

Despite the banking restrictions currently faced by the cannabis industry, a growing number of payment processing options are now available for dispensaries and other cannabis businesses.

Point-of-Banking

Point-of-banking (also known as cashless ATM) allows retail customers to pay for purchases with a debit card – the equivalent of paying cash – without the necessity of bringing physical bills with them. Point-of-banking is only appropriate for dispensaries, medical offices, or other businesses that collect payment directly from in-person customers.

Here’s how it works: At the point of sale, a customer swipes their debit card, enters their PIN number, and requests a withdrawal from their bank account (rounded to the nearest $5 or $10). Instead of actual cash, a receipt is printed. The receipt is then presented to the cashier, who deducts the merchandise price, ATM fees, and any applicable tax, and then presents the customer with any remaining change. Many point-of-banking systems also include the option to add an employee tip.

While they may be slightly more cumbersome than conventional payment processing systems, it is possible to find point-of-banking systems that will smoothly integrate with your existing point of sale system, creating an easy and relatively seamless experience for your customers. Point-of-banking does require businesses to keep cash on hand for “leftover change” disbursements.

Credit Card Cash Lines – Not Worth the Risk

While it might be tempting to allow customers to access their credit card cash lines via point-of-banking, this practice is illegal for cannabis businesses and can carry serious repercussions, ranging from steep fines to permanent termination of your merchant account. If your merchant account is closed, all of your pending transactions will be frozen, and your company potentially blacklisted from working with any and all credit card processors in the future (even when credit cards eventually do become legal tender for cannabis transactions).

Digital and ACH Payments

Digital payment methods, such as E-check and ACH (automated clearing house) transfer, offer customers an even more streamlined experience and are becoming increasingly accessible to cannabis businesses. These payment types involve the direct transfer of funds from a customer’s bank account to a business’s. Funds from these transfers are typically deposited within 1-2 business days.

Digital payments are easy to track and report on the business end, and they create a simple and easy customer experience. Digital payments can be collected without a customer physically on-site, allowing dispensaries an easy and viable way to collect payment for pre-orders and/or deliveries. Digital payments are also an ideal way to facilitate transactions between businesses within and servicing the cannabis industry.

Credit Cards

Credit cards are perhaps the most attractive payment method for any business, as studies have shown customers statistically spend more per transaction with credit than any other payment method. In some countries, including Canada, it is legal to pay for cannabis products or services with a credit card, and some high-risk-friendly banks do offer this payment processing option.

Unfortunately for cannabis businesses in the US, marijuana’s federally illegal status prohibits credit card companies from running transactions related to it. Legislation aiming to lift this restriction is already in progress, with the proposed SAFE Banking Act passing in the US House of Representatives in 2021 and currently awaiting consideration by the Senate.

Cryptocurrency

Cryptocurrency (such as bitcoin) is a discreet, cashless, and legal way to pay for cannabis. While cryptocurrency is gaining popularity in some circles, it’s still not widely enough understood or accepted by the general public for most cannabis businesses to rely on as a primary payment method.

Cash

In legal cannabis’s earliest days, cash was the only acceptable payment method, with most dispensaries keeping ATMs in-store for customer convenience. Its discreteness and minimal bank involvement continue to make cash the dominant payment method for customer transactions within this industry. Although cash transactions are discreet and not subjected to the fees bank-based transactions are, relying on cash as a primary payment method is not ideal for several reasons:

• Security: Any business known to deal primarily in cash is an attractive target for thieves, necessitating enhanced (and more expensive) security measures to protect employees, products, and the cash itself. Particularly stringent staff security is also essential to prevent internal theft or loss.
• Human error: Cash requires time-consuming human effort to count, reconcile discrepancies, prepare bank deposits, and manually track and report. This increased time spent on cash handling will naturally be reflected in higher payroll costs.
• Health and safety: The coronavirus pandemic drove many businesses, including retail cannabis, to seek cash alternatives, with the intention of limiting the risk of viral exposure through the handling of bills.
• Limited upsell potential: Another drawback of cash-only retail is that customers can only spend the cash they have on hand, limiting staff’s ability to upsell.

What to Look for in a Cannabis Payment Processor

It’s wise for any retail cannabis business to utilize more than one type of payment option. This diversification is wise in the event that technical glitches – or even changing legal allowances – temporarily or permanently disable your dispensary payment processor of choice. Retail customers also appreciate the ability to choose their preferred payment method.

Whichever type of cannabis payment processor you opt for, it’s essential to the well-being of your business to choose carefully. Here are the most important things to consider when selecting a payment processor for a cannabis industry business.

• High-risk friendly: It’s critically important for any cannabis, CBD, or ancillary business to only utilize payment processors well-versed in and actively servicing high-risk industries. Steer clear of companies that offer to help you skirt the legal restrictions placed upon the cannabis industry – such as accepting credit card payments in jurisdictions where it is still illegal to do so. The repercussions of getting caught trying to hide your connection to cannabis from your financial institution can permanently devastate your business.
• Flexible contract terms: In the ever-changing cannabis industry, look for payment processors that offer short-term contracts with flexible terms. Avoid companies that insist on locking you into a long-term contract with hefty fees for early termination.
• Reasonable fees: Fees can vary considerably among different cannabis payment processors, including transaction fees, set-up fees, monthly statement fees, annual compliance fees, support fees, and more. Make sure you get a full breakdown of all associated costs before you sign on the dotted line.
• Timely deposits: There’s no need to settle for long wait times between the point of sale and having access to the money collected. Many payment processors now do next-day or second-day deposits.
• Compatibility and integration: Look for a payment platform that’s compatible with your current POS software and hardware systems. Some are only compatible with (and require you to buy or rent) their own branded equipment and software.
• Customer support: Inevitably, every business runs into the occasional chargeback or other problem and it’s essential to have reliable support available to help you sort through it. Find out how your prospective cannabis payment processor handles refunds and transaction disputes, as well as hours of availability, and whether any fees are associated with support calls.
• Solid Reputation: A rush of new payment processors have recently jumped into the rapidly-growing cannabis market, but not all of them are worth working with. Only trust your business income to payment processors with good reputations and verifiable, positive customer reviews. To help you start your search, we’ve included a list of payment processors we like and trust below.

Our Recommended Cannabis and CBD Payment Processors