Cannabis Payment Processing: 5 Things You Need To Keep In Mind
by Arina Smith Business 31 July 2021
In the last few years, the rampant rate at which cannabis legalization has taken place has been quite drastic. With more than half the states in the union ratifying the use of medicinal and recreational marijuana, the industry is growing at an alarming rate.
There is no wonder that there are thousands of businesses that now consider this niche as a highly profitable one. Wall Street investment firms have been pushing and investing in some great and enterprising start-ups in this business niche.
Growing awareness, social media networking, and the overall environment of alternative medicine have led to excitement and interest from the masses. While everything seems to be good on the surface level, there has been one area that has emerged as a major challenge.
In this article, we are going to explore the fundamentals of cannabis payment processing. We are going to look at five important things businesses that operate in the cannabis industry need to remember before opting for a payments company.
Cannabis Payment Processing: Challenges and Obstacles
Just like any other industry, cannabis businesses can benefit from fintech integration. Accepting credit and debit cards, formalizing net banking, and offering digital wallet integrations can help the cannabis industry to become formal and legal in a major way.
However, financial regulations put the cannabis business in the ‘High-Risk Merchant Account’ category. This means that there are far too rigid stipulations and higher interest payments that businesses in the cannabis industry need to comply with.
If you are looking at data, in a 2017 survey, only 300 banks in the entire United States out of 11000+ banks accepted cannabis businesses. This means that all this has made the industry dependent on cash payments. In legal terms, cannabis and related products are under the ‘Controlled Substances Act.
Banks have to comply with federal regulations and this act prevents them from embracing or offering the entire gamut of formal and legal banking activities to cannabis businesses.
List of 5 Things you need to know about Cannabis Payment Processing
1. There are many Credible Marijuana Payment Solution Companies-
In the last few years, there has been a steady rise in the number of new fintech companies offering payment solutions to cannabis businesses. Companies like Paybotic have started offering everything from check payments to gift card programs to the cannabis businesses. You need to do your research and see the kind of benefits that a payments company can bring.
2. Understand how the Fee Structure works of the Payment Company-
There are different types of fees that cannabis payment processing companies will levy on businesses. These range from monthly fees to set-up costs and gateway transaction fees. Most of the reputed companies will not unnecessarily burden cannabis businesses with too many fees apart from one-time monthly costs. Make sure you choose a processor with low fees.
3. Ensure that Transparency is maintained at every step of the financial journey-
If your cannabis payment processing company is charging you hidden fees at every step of the process, it would probably be a good idea to leave them. The cannabis business has become infamous for fintech companies charging over and above the stipulated fee charges. Transparency should also be maintained in terms of compliance with banking and federal laws.
4. Working with Newer Companies and Start-ups is a Great Idea-
You might get a call back from an established bank after ten or twenty tries. A better idea would be to get in touch with newer fintech and payment companies that want to create a mark in the cannabis payments processing industry. As both of you would be new to your respective fields, you will be able to help each other out in different ways and foster combined growth.
5. Complete Formalization will still take a long time-
It is natural for cannabis businesses to feel frustrated even though the user has been completely legalized. This is because traditional finance has always been hesitant when it has come to extending financial support and functions to high-risk merchant accounts. Cannabis businesses are still considered a grey area and it would take some time for them to become legalized.
The Final Word
Choosing a financial payments company to help your cannabis business can prove to be very beneficial. It can help you scale up the business, get credit facilities and legalize different processes and operations. If you have any other questions, you would like us to answer on cannabis payments processing, let us know in the comments section below.