How Non-Cash Payment Options Could Benefit the Cannabis Industry

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Illustration: Andrey-Suslov / Shutterstock

Can you imagine a world where cash, not credit, is king? In this alternate universe, all the conveniences we take for granted in the golden age of ecommerce — including higher spending limits, payment plans, and safe, frictionless retail experiences — would cease to exist.

That’s the reality in the cannabis industry. Due to federal regulations that block canna-businesses from accessing many banking services, cash and debit (also known as “cashless ATM”) are the only payment options for cannabis consumers and merchants — and recently, even cashless ATMs in dispensaries have been called into question. As a result, both dispensaries and consumers must deal with archaic issues like hidden transaction fees, slower service, and the security risks associated with carrying cash.

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Cannabis is becoming a sophisticated and modern consumer product, but today’s retail experiences fail to reflect where the industry is heading. Let’s take a look at three primary ways non-cash payment options could not only benefit cannabis merchants and consumers but also maximize efficiency across the entire industry.

1. Frictionless transactions

The absence of non-cash payment options, also known as credit payments, in cannabis creates a less-than-ideal shopping experience for consumers. If customers choose to pay with cash, they first need to ensure they have enough on hand to make the purchase. If they fail to plan ahead, their first stop is likely the on-site ATM that charges a hefty withdrawal fee, often accompanied by a fee from the consumer’s bank. Starting a dispensary visit with unnecessary charges certainly will put a damper on anyone’s purchasing experience.

Paying via debit also can incur hidden fees. Despite being called “debit,” these actually are cashless ATM transactions. Real bank debit transactions — as when using a debit card at a gas station or grocery store — are off limits due to federal prohibition. And since the transaction is a simulated ATM withdrawal, dispensaries are required to round up the total to the nearest $10 and provide the change back in cash and coins. This can be a confusing process for first-time customers. For regulars, it’s simply a hassle they have to tolerate every time they shop in a store.

Lack of credit also complicates the payment collection process for merchants, especially for ecommerce orders. Since customers are unable to pay online with a credit card, stores must collect payment upon delivery or in-store pickup. The system is vexing for retailers, who are left wondering whether the customer will ever arrive to collect their pre-order or have enough cash on hand to cover a delivery order.

Introducing credit payments would streamline the process for people on both sides of the transaction, offering customers a simplified buying experience and merchants a sense of certainty.

2. Larger baskets

But what if the customer doesn’t have enough funds in their bank account to cover their desired purchase? Credit opens the door for customers to purchase more than they might be able to afford at the moment, which is particularly important for patients in need of medication.

Credit-driven “buy now, pay later” systems also incentivize consumers to purchase more products during any given transaction. Klarna and Affirm, two traditional “buy now, pay later” platforms, discovered retailers using their services experienced a 58-percent and 87-percent increase in average units per transaction, respectively. Retailers benefit from greater revenue, while customers gain freedom to add more of the products they want to their cart. It’s an obvious win for both parties.

Credit also makes for a significantly safer retail ecosystem. People aren’t always comfortable carrying cash, whether it’s $60 or $200 in their back pocket, especially in high-crime neighborhoods. Additionally, cash payments for drive-in pickup orders or deliveries put both customers and employees at risk for theft or harm. Credit payments eliminate this risk by minimizing the need for cash to change hands in an open, unsecured setting.

3. Increased safety

Meanwhile, withdrawing cash at an ATM comes with the risk of fraud: Skimmers illegally installed on ATMs can capture card numbers and PIN codes, creating myriad opportunities for identity theft.

Even worse, merchants who operate cash-only businesses are attractive burglary targets, both externally and internally. In fact, employee theft accounts for roughly 90 percent of all financial and product loss in the industry. As a result, some retailers are forced to transport hundreds of thousands of dollars in weekly or monthly revenues to the nearest bank for safekeeping, which presents another major security risk.

Canna-businesses in every legal state already have to pay exorbitantly high taxes to continue operating. The last thing they need is increased risk of losing their already smaller-than-average profit margins.

The industry is growing, and so too is the consumer transition to online purchases. Online is the only space where customers don’t have to think ahead before deciding which dispensary to visit or which products they can buy. As more states legalize and the industry grows, consumers are going to expect the same shopping experiences they have in other industries—including the ability to purchase cannabis with credit.

Mainstream companies like Amazon and PayPal already offer “buy now, pay later” services to consumers and non-cannabis businesses. Third-party providers must step up to the plate and offer the cannabis industry comparable services that traditional financial companies refuse to provide, enabling true ecommerce and access to digital payments and banking.

Such offerings will keep ancillary financial services in lockstep with mainstream providers while also meeting cannabis businesses’ unique needs and preparing to scale for a future where cannabis is federally legal. Some providers are already launching these services in test markets, with the goal of rolling them out nationwide within the next few months.

The world runs on credit. As such, the cannabis sector will forever lag behind other industries in maturity and efficiency until digital credit payments are allowed.


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KindTap Technologies cofounder and Chief Payments Officer Cathy Corby Iannuzzelli’s three decades of experience in financial services inform her expertise in card-issuing and emerging payments. Previously, she worked with leading payment processors, financial institutions, and consultancies including Booz, Allen & Hamilton. She holds a Master of Business Administration degree from Columbia Business School.

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