Payment processing in the cannabis industry poses a distinct challenge. The lack of federal legalization — and lack of participation from major payment networks — prevents the acceptance of debit or credit cards for cannabis payments.
That said, cannabusinesses are not limited to cash as the only accepted form of payment. According to Doug Rodewald, Head of Payments at Dutchie, there are a number of digital payment options available that not only protect your compliance, but also help streamline the payment process for a better customer experience.
Read on to learn more about the challenges, available solutions, and anticipated future developments for digitally processing cannabis payments.
Payment Processing in the Cannabis Industry
Like many aspects of the cannabis industry, payment processing for cannabis products is in a state of flux. New cannabis payment solutions and products are emerging, while others have fallen out of use.
Rodewald identifies two main alternatives to cash that currently meet Dutchie’s standards for compliance and transparency:
- Automated Clearing House (ACH) transfers: Consumers make payments directly from their bank accounts, both online and in-store.
- Stored-value wallets or gift cards: Consumers pre-load funds onto a card or digital wallet that can be used at an assortment of cannabis merchants throughout the industry.
In the past, PIN debit transactions have also been used successfully. However, large payment networks such as Mastercard have recently banned the use of their cards to purchase cannabis, rendering accepting PIN debit for cannabis payments nearly impossible for the time being.
While some cannabusinesses use cashless ATM processing, Rodewald cautions that these products often lack transparency and thus can pose a compliance risk.
Debit & Credit Card Transactions
PIN debit transactions were previously possible because a 2010 amendment to the Electronic Fund Transfer Act (EFTA) allowed merchants to route transactions to any participating network instead of being restricted to VISA or Mastercard.
While many of these smaller networks have since been discouraged from supporting cannabis payments, Rodewald is hopeful that PIN debit transactions for cannabis products could resume in the future.
“Some processors are looking into how to reinstate different networks that want to participate,” he says. “If that happens, you wouldn’t see 100% of debit cards accepted, but you could see 50-80% of debit cards accepted across the U.S., which would be great.”
For now, however, accepting debit or credit cards for cannabis payments is extremely risky. Rodewald explains that many solutions that claim to process these transactions legally don’t actually do so with full transparency to the networks and banks, opening cannabusinesses that use them up to potential compliance issues.
Ultimately, it’s not entirely impossible for cannabusinesses to accept debit or credit cards, but it’s also not advisable at this time.
Improving the Payment Processing Experience
When choosing products for processing cannabis payments, many dispensaries simply focus on whether a given product will work. However, Rodewald argues that it’s much more important to consider who you want to work with from a compliance perspective.
He recommends vetting solutions based on three major criteria:
- Lead with compliance. How does this solution ensure you aren’t putting your business at risk? What level of transparency does it offer about where your money is going and how transactions are processed and reported?
- Consider the customer experience. Which products or solutions work best with your consumer strategy? In other words, how do you want to improve transactions (e.g. speed, online payment processing, basket size, etc.), and which products or solutions will help you accomplish those goals?
- Check for integration. Do these solutions or products integrate with your existing operations and POS system to simplify the payment process?
Don’t make the mistake of sacrificing compliance for an “easier” but less transparent solution for cannabis payments. Instead, choose a solution that upholds high compliance standards while also facilitating great consumer experiences.
The Future of Cannabis Payments
While the current lack of federal legalization prevents the use of debit and credit cards for cannabis payments, Rodewald anticipates that this won’t be the case forever. You’ll want to ensure your dispensary is equipped to adapt when changes come.
“Think about the future today as well,” he says. “Today is crazy. Tomorrow will be better. But understanding that bridge to get between today and tomorrow is also important.”
Make sure you’re working with the right partners now to keep your dispensary compliant and to prepare for a future where various forms of payment — and cannabis in general — are much more normalized.
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