By Max Miller
The latest election results point to a rising tide of support for marijuana legalization. With a majority of states now legalizing marijuana for medicinal and/or adult recreational uses, and a real possibility of federal law changes, it's an opportune time for ISOs and merchant level salespeople (MLSs) to start making plans for selling payment services that cater to this burgeoning market opportunity.
In November 2020, voters in four states overwhelming approved ballot measures allowing for adult recreational uses of marijuana: Arizona, Montana, New Jersey and South Dakota. And voters in Mississippi approved a medical marijuana initiative. This brings the tally of states allowing some sort of legal marijuana use to 38; 14 states plus the District of Columbia have legalized adult recreational uses of marijuana.
President-elect Joe Biden said he favors decriminalizing marijuana on the federal level, and allowing sales of medical marijuana. And Vice President-elect Kamala Harris is a co-sponsor of the SAFE Banking Act, which would establish a safe harbor for banks and credit unions that want to provide financial services to legal cannabis businesses. That bill was approved by the House of Representatives but has stalled in the Senate.
The revenue opportunities from legal marijuana sales are enormous, for purveyors as well as state tax collectors. Legal sales, nationwide, this year are projected to reach $15.8 billion, a 30 percent increase over 2019 sales, according to Arcview Market Research, which keeps tabs on the market. Pot shops in Colorado, one of the first states to legalize marijuana, rang up more than $1 billion in sales last year. Since marijuana was first legalized in Colorado in 2014, the state has collected more than $1 billion in taxes from marijuana sales.
The crazy thing is that many marijuana businesses are stuck in the 20th century, only accepting cash from customers, or relying on workarounds to card network restrictions on cannabis-related transactions. Many have implemented cashless ATMs, for example, which route PIN-authorized credit and debit card transactions through ATM networks. These solutions may eliminate costs and risks associated with managing mountains of cash, but they are not robust enough to support the unique needs of these businesses.
It's going to take something like the SAFE Banking Act for the card networks to accord legitimate cannabis businesses the same standing as other legal businesses. This may not happen immediately, but it will as public support for legalization mounts. A recent Gallup survey of adult Americans found nearly seven out of 10 (68 percent) support legalizing adult possession and use of marijuana.
While cannabis dispensaries are the most obvious businesses in need of payment processing services, the cannabis value chain is extensive. It includes tens of thousands of other businesses that require modern electronic payment options—businesses such as growers; testing labs; distributors; and companies selling cannabis-related products, like CBD products, hemp clothing, and smoking and extraction devices.
ISOs and MLSs need to plan for this eventuality. A good first step is to understand applicable laws in states where there are cannabis businesses that are likely prospects. Then search out reputable partners that already serve this burgeoning market. Here are some considerations for evaluating prospective payment processing partners:
How good is the company's customer support? Can the prospective partner be counted on to be at the ready, no matter when clients encounter operational hiccups?
Max Miller is founder and CEO of Paybotic, a payment processing company specializing in high-risk businesses, including cannabis businesses. Contact him at firstname.lastname@example.org.
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