Despite generating $17.5 billion in sales in 2020, marijuana businesses still largely operate on a cash basis due to federal cannabis prohibition.
This represents a staggering 46 percent year-on-year increase, and it is widely expected to continue on this trajectory as more and more states move to reform their cannabis laws and open up to legal sales.
Nonetheless, traditional financial institutions are hesitant to work with state-legal cannabusinesses while marijuana remains federally illegal, creating risks and complications for marijuana business owners that eat into their bottom line.
Smaller banks and credit unions that operate at the state-level are often amenable to offering financial services to marijuana businesses, while one regional bank recently launched a dedicated cannabis banking program.
However, these players can’t keep up with the insatiable growth of the industry. As TechCrunch reveals, the vast majority of marijuana-related transactions still occur on a cash basis.
So far, legislative attempts to reform cannabis banking at the federal level, namely the Secure and Fair Enforcement (SAFE) Banking Act, have failed to deliver. The House has approved this bill six times, but the Senate has yet to hold a full floor vote on the measure, despite a coalition of banking associations urging the chamber to pass the reform.
In response to this impasse and the difficulties faced by marijuana businesses, multiple payments startups, like SuperNet, CanPay, and POSabit, have emerged offering alternative digital payment solutions to the cannabis industry. These include ACH transfers and cashless ATMs, among others.
Instead of forcing customers to pay in cash, with its attendant risks, these payment startups use their own bank accounts to allow marijuana retailers to accept digital payments in return for a commission or subscription.
This means marijuana retailers don’t have so much cash at hand that can be lost or stolen, and it also makes it easier to keep track of transactions for record-keeping purposes. This is especially important for cannabusinesses as they have significant tax deduction restrictions and are at much greater risk of an IRS audit than businesses in traditional industries.
While an imperfect solution, payment startups for marijuana businesses have filled a gap that is sorely-needed until Congress can finally come together and find a durable legislative solution that will allow cannabusinesses to compete on an equal basis with other companies.