As of 2017, there are 28 total states that have voted to legalize marijuana in some form for medical purposes — and 8 states, plus the District of Columbia, have voted for full legalization.
For cannabis enthusiasts, medical patients, advocates and dispensary owners, the growing groundswell of acceptance at the state level is good news.
But, notes Shaunt Sarkissian, CEO of Cortex MCP and CSP Technologies, it’s kind of good news with an *asterisk,* because while it may be cool to inhale in certain states, marijuana is still classified as a Schedule One narcotic by federal guidelines.
That means when it comes time to pay for it — things get kind of complicated.
“It is an interesting market, especially for traditional payments people like myself,” Sarkissian told Karen Webster in a recent conversation. “I don’t think there is anyone in the industry who hasn’t looked at it to see if it is an opportunity. But the reality is that because it’s a Federal Schedule One, it is banned by all the card networks. So, it’s off the table for anyone working in the merchant services business.”
Because of the state and federal conflict regarding legality, cannabis payments are quintessentially a square peg trying to fit into a round hole. A round hole that, today, is being filled with cash.
But, Sarkissian notes, as more states legalize cannabis for recreational purposes, the market needs to be addressed — which is why it will get a starring role at The Innovation Project this year. States are totally ready to inhale the multi-billion dollar tax opportunity that it presents, and so are the payments networks — but cutting through the regulatory haze (we promise we’re done now) will take some outside the box thinking.
The Cash Crunch
As of today, cash is pretty much the only option open to dispensaries when it comes to payments. And that, notes Sarkissian, is all payments — from those made by consumers to the dispensaries to the payments made by those dispensaries to their suppliers.
“In-store payments are cash, payments to employees are cash. These dispensaries are making 50K in payments — or receiving them and then having to send couriers to deposit them in 8 different bank accounts to stay under the $10k cash threshold. Well, assuming they can even get a bank account.”
Sarkissian points out that employees are getting robbed, dispensaries are getting robbed — because, well, they’re easy targets. And the more states that relax their laws and allow recreational and medical use, the more of a problem this becomes.
While ACH at the point of sale has been offered as a possible solution, Sarkissian notes it is one that overlooks the incredibly difficult the integration issues that entails.
States and regulators, as it turns out, don’t really want to the cannabis industry to be entirely cash-locked either — since it means that the system doesn’t have the transparency and taxibility they might like. Electronic payments offer all that transparency — but can’t go through the card networks because of the current state/federal conflict.
“What we have is a perfect confluence of regulators and the industry looking to move in the same direction and wanting to solve the same set of problems,” Sarkissian observed. The challenge is to take the things we apply traditionally around tokenization and closed loop payments that can solve this problem and then collaborate with governments to solve this on a regulatory and financial level.
Because while some think the issue might soon be moot, given the current Attorney General’s long held opposition to marijuana legalization, Sarkissian thinks that the overall states’ rights focus of the current federal administration means that it is going to be up to the states to test lab this issue more and more.
Which is where Sarkissian thinks that closed-loop systems might really help — that’s something he told Webster is what the regulators are demanding, and in some cases in legislating for.
“Everyone who touches the industry is screaming for it. There are ways to create state-specific closed loop payment systems that solve the payment problems and provide the transparency and reporting that make it possible to see all the dollars being transacted in that system. It is the visibility in the stream.”
Efficiency Not Advocacy
Sarkissian noted that the players appearing at IP aren’t about advocating for the legalization of marijuana – but mainly enabling the safe and secure transactions that consumers making any other sort of payment have come to expect. Like everyone else, Sarkissian says, “I’m just a traditional payments guy, I’m not championing the industry.”
Joining Sarkissian will be Regulatory & Compliance Principal/Former Fed Bank Examiner Dante Tosetti, Ohio State Senator William P. Coley and PYMNTS.com CEO Karen Webster on the panel.
Sarkissian notes that the senator is the one professing the closed loop solution in Ohio who will provide an inside look at how some States are hoping to kill the cannibals cash cow.
If you want in on the conversation that will happen as part of the Innovation Project 2107 on March 15-16 on the campus of Harvard University, register here.