By Max Miller
Much has been written about unbanked American consumers. But what about unbanked businesses? Thousands of U.S. businesses are routinely turned away by banks and credit unions, for one simple reason: the cannabis products they handle and/or sell, while sanctioned by state law, remain illegal under federal law. It’s not just cannabis dispensaries, either. Farmers who grow cannabis, state-authorized labs that test cannabis for safety and potency, distributors—even companies that sell related products, like CBD oils—find themselves shut out of the banking system.
Fortunately, a new breed of financial technology firms has emerged to seize on this market opportunity, building modern platforms that address the unique financial services needs of cannabusinesses.
Legal cannabis businesses need access to modern financial services such as credit and debit card acceptance, loans, and depository services. Yet most credit unions and banks don’t want the regulatory hassles of working with cannabis businesses. As of last June, just 695 banks and credit unions were servicing marijuana-related businesses, according to the U.S. Department of the Treasury, which keeps tabs on marijuana-friendly banking through the Financial Crimes Enforcement Network. This, despite the fact that the legal cannabis market exceeded $16 billion last year.
As millions of unbanked Americans have learned, you don’t need to do business with a bank or credit union to access modern financial services. Unbanked consumers use many combinations of services from financial technology firms—prepaid debit cards with direct deposit and online banking portals, for example—that often are cheaper and better suited to their lifestyles. Having access to modern banking services, albeit from nonbanks, helps put unbanked consumers on a better financial footing. The same can be said for businesses in the cannabis sector. Merchant services ISOs are well situated to help dispensaries and other businesses in the cannabis value chain access modern financial services.
It has been well-documented that the mismatch of federal and state laws around cannabis sales has left many cannabis businesses saddled with mountains of cash, with nowhere to deposit it. Most are forced to transact with trading partners on a cash-only basis, and to hire armed guards to protect their businesses and customers from criminals lured by the cash nature of these businesses.There is an obvious need for electronic payments, and some good options are available in the market. These include cashless ATMs (sometimes referred to as point-of-banking systems) for PIN-authorized credit and debit card acceptance at retail locations, and electronic check and ACH payments for ecommerce and business-to-business transactions. Retail payment acceptance solutions also need to incorporate options like mobile payments and digital wallets, as well as changing channel preferences, such as online ordering for curbside payment and pickup.
Cash advances are viable alternatives to conventional bank loans for cannabis businesses, and a way for ISOs and merchant level salespeople to leverage existing card processing services to enhance revenue opportunities. Look for a cash advance partner that is comfortable with and can demonstrate high approval rates for cannabis businesses. Opportunities also exist for providing safe, cost-effective solutions supporting the legal transportation and depositing of cash into the banking system. Remember, while most banks and credit unions shun cannabis businesses, nearly 700 have put in place policies and procedures that meet regulatory requirements for accepting cash deposits from and providing related services to these businesses.
Some fintechs have created platforms that financial institutions can leverage to board cannabis merchants in ways that are compliant with various local, state and federal requirements, and are scalable also. ISOs can also work with these fintechs to pair clients and prospects with cannabis-friendly financial institutions. Look for a partner that can provide support for:
ISOs that can deliver on these needs will play a valuable role in helping cannabis businesses grow and succeed, while building their own portfolios and residual streams on a growing industry.
Max Miller is founder and CEO of Paybotic, a payment processing company specializing in high-risk businesses, including cannabis businesses. Contact him at email@example.com.
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