by Gary Strahle,

Cannabis industry merchant service providers get shut down. How has this impacted retailers and at what cost? Learn how operators are mitigating theft and working with the National Cannabis Industry Association to drive legislation.

In order to best understand what payment methods will suit you best, you must first understand the inherit risks that are associated.

Let’s put it bluntly; there is no such thing as a federally compliant payment in cannabis, not even cash. Given states have legalized the sale of medical adult-use cannabis, it is still very confusing and in some cases crippling when choosing your method of payments.

Cash is king.

Because federal banks legally can not do business with the cannabis industry, retailers have limited options for securing their resources. This makes dispensaries targets for theft. Criminals are coming after both product and cash which requires operators to make heavy investments in security systems. These include state-of-the-art video surveillance, 24/7 on-site security, steel doors, bulletproof glass, expensive safes, terrible insurance policies, and a lot of trips to your favorite credit union. State-chartered credit unions are the only banks accepting cash from cannabis businesses. 

Although cash comes with some inherit benefits, coins don’t. Coin change is a big problem for retailers as there has been a national coin shortage. What are you supposed to do when your angry customer is complaining over the 75 cents you can’t return to them? Do you give them customer credit? Do you make an adjustment or a discount? Do you request your POS provider to create a “round up” feature that brings every cash-related transaction up to the nearest dollar? 

Benefit: Tax Exposure.

Risk: Tax Exposure, Theft, Time, Money

So what about Cashless ATM?

A cashless ATM is where customers break out their debit card at the register to pay for their retail purchase. Just like any other ATM, you are drawing against an even $10 or $20 amount from your bank account. So if your purchase was for $17, a budtender would hand you back $3 cash in change for your purchase. 

While there has been mixed results with cashless ATM’s there was a crackdown made by Visa and Mastercard to shutdown these types of transactions on their network. A significant number of retailers lost their capability to process all of a sudden and had to revert to cash-only payments. While a good chunk of the high risk payment providers were shut down, others continued processing without service interruption for reasons I will explain later.

Although cashless ATM payments can mitigate some of the risks involved with cash on hand, they are subjected to a number of costs that can factor into your daily management and or customer experience. First, if your payment terminals are not integrated with your retail POS, good luck reconciling your money at the end of the day. Budtenders will frequently miscode payments on the POS and assign card payments to cash transactions or vice versa. This makes it extremely tedious to reconcile your books. On the other hand, everyone hates ATM fees. Our colleagues have witnessed fees as high as $25 in places like Las Vegas. Typically you will see most cashless ATM fees between $3-3.50, however, it is common to see them even higher. 

Benefit: Processed as an ATM transaction(not a Cannabis Transaction) Settlements are deposited directly into the bank.

Risk: Added fees to customer.

What is different about Pin Debit?

Pin debit allows charges to the penny. This is a cool way to allow customers to pay with their debit card without having to pay the ATM fees. It is relatively new and still unclear if these processors will get away with miscoding their RCC. If you looked at the customers bank statement you would see the charge from your dispensary just like a cashless ATM however the way it got there is much different. Processors are telling networks and banks that these are “pharmacy” transactions. When a customer calls the bank and discusses your transaction at a cannabis dispensary it would seem like things could start going down hill quick for both the payment provider and the merchant (dispensary). With all risk considered it remains as an option for many to process their payments. In conclusion what I’m about to share about credit payments would make you consider pin debit twice.

Benefit: To the penny charges, no ATM fees.

Risk: Miscoded RCC, Merchant Service Shut Down.

How about plain debit or credit?

Don’t do it. This from personal experience has impacted my life. A close family friend was indicted and served time in jail for fraudulently processing credit card payments for delivery giant Eaze. This was a get-rich-quick scheme that broke friendships, businesses, families, and a healthy portion of the retail cannabis industry. Just like pin debit, credit charges are miscoded but in this case purchases were being identified as “dog treats” or “flowers.” The charges would not show up on the customer bank statement as a purchase from a dispensary. Understanding the high risks associated with processing cards in such a way is explicitly fraudulent and has the highest likelihood of involving some form of trouble . 

Benefit:Massive increase in Sales.

Risk: Non-payment, Chargebacks, Miscoded RCC, Merchant Service Shut Down.

In summary.

If you or your business are looking to service card payments for your customers, choose your options wisely. In my own personal opinion, you face the least amount of risk using an integrated cashless ATM solution, however if the customer is demanding a more traditional debit experience then it could be worth running a cost/benefit analysis. 

The bottom line is that those who have the most dynamic and redundant integrated card payment solution will be the most continuous while mitigating the risks of cash. The payment providers getting shut down do not have redundancy in their network providers or payment methods and therefore non sustainable.

Some payment providers will eat the time in jail and or fines as they are or were able to make a significant amount of money greater than the cost of the punishment.

Until we can successfully make legislative changes being pushed forward by NCIA, those who care about making change should donate to their cause and participate in NCIA’s 11th Annual Cannabis Industry Lobby Days in 2023.

Author: Gary Strahle is a Technical Architect with over a decade worth of operational cannabis industry experience. 2023 NCIA Retail Committee Chairman. Avid surfer and golfer with a passion to help others.

Cannabis Cloud – Applications, Consulting & Payments. Founded in 2015, providing service to over 2,500 cannabis businesses. Specialized as a Salesforce Partner innovating industry standard solutions from seed to sale, Cannabis Cloud’s payments integrated Retail Point of Sale hosts a robust api for connecting Metrc as well as external menus such as Weedmaps or Leafly.