With federal cannabis banking reform at a long-running impasse, more and more payment service providers have stepped in with solutions so that marijuana businesses in states that have legalized cannabis don’t need to operate solely on a cash basis.
Understanding what cannabis payment options are available and how each method works is no easy feat though, so here’s a roundup and explanation of the point of sale (POS) options marijuana dispensaries can make use of.
1. PIN debit
This method is most similar to payments with credit cards. The customer simply uses their debit card and enters their PIN.
However, rather than the funds being taken from your bank account, they are routed through a third-party payment processor.
While convenient and intuitive for the customer, there are disadvantages. First off, it is more risky. Due to federal cannabis prohibition, the chances are higher that the bank will flag the transaction. Worst case scenario, your merchant account could be blacklisted and you could be prevented from accepting credit and debit cards even when it is legal to do so at the federal level.
It is also expensive, for both the vendor and the customer. Payment terminals are around $500 and usually come with a monthly service fee in the region of $10. On top of this, payments must be made in denominations of $5 and many providers also stick on a ‘convenience” charge which can be anywhere between 3 to 4 percent.
2. ACH transfers
With Automated Clearing House (ACH) transfers, funds are transferred between bank accounts with checks, cards, or wire transfers.
This is straightforward, secure, and legal but the trouble is that the customer also has to register for the service with a third-party.
3. Point of banking
Otherwise known as cashless ATM, point of banking is similar to the PIN debit method but for credit cards.
A credit card terminal at the POS essentially acts like an ATM whereby the customer authorizes a payment to the merchant. As with PIN debits though, this service often comes with built-in fees and service charges on top of terminal installation costs.
Some point of banking providers, like POSaBIT, also offer mobile payment options to process online, curbside and delivery payments.
These operate in a similar way to point of banking and PIN debit methods as the process involves a bank-to-bank transfer but without the use of cards.
This means no installation costs or service fees but it does require the customer to download the app in order to authorize payments, which can be a stumbling block.
Still a niche option, some cannabis dispensaries take payments in cryptocurrency. It seems ideal insofar as it is digital, secure and anonymous but much about the technology and its reliability remains uncertain.
Also, unlike the other methods, it is unclear who the customer or merchant would approach should something go wrong during the payment process.
6. Marijuana-servicing banks
While there are no nationwide banks servicing cannabis businesses, there are state-level options, especially banks that specialize in servicing high-risk clients.
Herring Bank and Dama Financial are two such examples, and more are sure to follow. As a client of these banks you would be able to accept payments from all the major credit and debit card providers, including MasterCard, Visa, Discover, and American Express – ideal for the majority of customers.
Typically, these banks charge more for their services than traditional ones but while federal banking reform remains a distant dream, the advantages of doing business with them are clear.