The grass is slowly getting greener in the commercial cannabis industry. This week, on May 17, debit-based cannabis payments solution CanPay announced its eCommerce integration, enabling customers to pay for cannabis products online via direct link to their checking account.
Previously, CanPay enabled consumers and patients to pay at retail cannabis outlets via their checking account, but customers still had to wait in line to pay. With the enablement of eCommerce transactions, customers can essentially leverage a “mobile order ahead” function for their cannabis products.
Of course, in such a heavily-regulated industry, customers will still experience some wait time at outlets, as retailers must verify their ID and their medical card — if they have one, and if the state where they are shopping requires it. This can still cause some backups at peak hours, but selecting and paying for products digitally ahead of time should, theoretically, move things along much faster.
CanPay CEO Dustin Eide said eCommerce capability is an important step toward normalizing and legitimizing cannabis sales — which, today, is one of the biggest factors working against the industry. Whether customers are buying for medicinal or recreational purposes, so far, they have had to pay cash or use a workaround such as a prepaid card, even in states where marijuana has been decriminalized or legalized. That’s not only inconvenient, says Eide, but it makes legitimate customers feel like criminals.
The ability to pay for products with the same credit card they use everywhere else would add legitimacy to the customer experience, but the major card networks still don’t want to touch the marijuana industry due to the conflicts between state and federal laws.
Cash is an issue because of costs, safety, loss, and theft, Eide said. Transactions can be quite large, leaving dispensaries with a lot of money on the premises, which must then be transported for deposit. And not every dispensary is close to a financial institution (FI) branch that provides cash pick-up services — so, for some, there is no practical way to get those funds into their account.
Retailers that offer delivery put their employees at risk for the same reasons. Sending someone to drive around with a bunch of marijuana and cash is practically an invitation for something to go wrong. Plus, where else in eCommerce do customers pay cash on delivery when the product arrives at their doorstep? This, said Eide, is yet another way in which cannabis retail has yet to be normalized.
So, alternatives have been developed. Prepaid cards and cryptocurrencies provide an intermediary, enabling customers to use electronic payments. But, Eide said, circumventing the prohibitions doesn’t provide a path to legitimacy. That’s why he said CanPay went with a debit approach, leveraging the ACH payment rails instead of an intermediary.
That also provides greater legitimacy and transparency for businesses, Eide added, enabling them to process transactions in their own DBA name rather than being masked behind a secondary name. The lack of transparency is the reason that eCommerce has not previously been an option for retailers in the cannabis industry, Eide said. Offline, if a merchant gets submitted to an underwriter as a flower shop, that can be hard to verify. Online, it’s easy for underwriters to see what a business is really selling.
Now, merchants don’t have to hide what they’re doing, said Eide. They can do business under their own name without fear of repercussions from banks or regulators, since CanPay is offering a legitimate, compliant way for them to complete transactions — in accordance with the strict and complex guidance standards introduced with the Cole Memo in 2013.
Eide said that more FIs are starting to look at banking the cannabis industry as markets begin to formalize rules and regulations. However, it’s still going to be a long time before commercial marijuana sales become mainstream, and it will likely take a full 180-degree pivot on the federal prohibition before major card networks become comfortable associating with the industry.